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View Diary: China Cuts US Credit Rating. Obama Cuts Hawaii Vacation Short. (171 comments)

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    SherriG
    The reserves are there to reassure the public that they can withdraw their money on demand. That's about public relations.
    Then why have the FDIC and how does Canada, for example, get by on zero reserves? Are Canadians are so civilized that they refrain from bank runs in the absence of reserves, or do they perceive things differently?
    The Bankers lend from their own profits, and from their deposits. Mainly the deposits.
    That's not correct; they lend by double-entry bookkeeping, by entering a loan and a deposit simultaneously on their books. The Fed will make up the reserve requirement later if the bank doesn't bring it about through other transactions. Banks can average over a 14day window. They are only constrained by risk weighted capital. Simple explanation here

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