Fractional-reserve has crap all to do with it, but their lending do indeed introduce new money into circulation.
If you deposit X to the bank, and the reserve requirement is R (say R=0.1), then the bank can loan out X(1-R) to someone else, who can deposit that money. Then on the basis of that deposit, they can loan out X(1-R)(1-R), and so on. The geometric series says that a deposit of X becomes bank-created money in circulation of up to X/R. With a reserve of 10%, $100,000 can become $1,000,000.
That legal fractional reserve requirement acts like a powerful lever on how much money banks can create.
With respect that is not accurate. [1][2]
[1] http://www.cnbc.com/id/100880857 [2] http://www.cnbc.com/id/100497710
This might interest you. It shows the impact of recent increases in capital reserve requirements on corporate lending.
https://www.financedigest.com/post-crash-banking-regulation-...
> The ongoing impact of post-crash banking regulation on corporate lending is a case in point. Thanks to reforms such as Basel III, banks must now hold a far greater portion of their capital in reserve.Some banks may face even stricter requirements in future; only this month Sir John Vickers called for UK banks to be forced to shore up their financial buffers further in the face of renewed market volatility.
> These measures are primarily motivated by a desire to make the overall system more stable, to ensure adequate reserves and liquidity in the case of another major shock. But part and parcel of this is the fact that it is now far harder and less profitable for banks to lend to a range of businesses.
> As a result, banks have been steadily withdrawing from large areas of corporate lending as they look to reorient their focus to key relationships and diversifying risk. This has left a gap in the market: many corporates are finding it near impossible to get the level of financing from banks that they previously relied upon.
Another good source from digi_owl: http://www.bankofengland.co.uk/publications/Documents/quarte...
Also this: https://www.newyorkfed.org/medialibrary/media/research/epr/0...
and this: http://www.economonitor.com/lrwray/2013/08/15/banks-dont-len...
and finally this: http://www.forbes.com/sites/francescoppola/2014/01/21/banks-...
Do you mean that money creation has little to do with the reserve requirement?
Here's a great video by famous investor Ray Dalio about this concept: https://www.youtube.com/watch?v=PHe0bXAIuk0
I believe that's only partially true. If your definition of money is a piece of paper (e.g. a bar tab), than yes anyone can create money. However, if your definition of money is the U.S. dollar (e.g. paper or electronic versions) than there are only two entities that can create it: the federal reserve via open market operations and banks via lending.
My question to digi_owl was whether he was making a distinction of what limits credit creation from banks. The reserve requirement has very little to do with it.[1][2]
[1] http://www.cnbc.com/id/100880857 [2] http://www.cnbc.com/id/100497710
I appreciate the link to the video, I'll check it out.
M0 - Currency in Circulation, physical coins and notes in public circulation.
MB - Monetary Base, M0 + physical coins and notes held in bank vaults.
M1 - Money, M0 + checking accounts (excludes bank vaults).
M2 - Money and Close Substitutes, M1 + time deposits (CDs, bonds, etc.)
M3 - Broad Money, M2 + money market funds, repurchase agreements, other wacky shit.
Wikipedia has more detail: https://en.wikipedia.org/wiki/Money_supply
Here's a graph of different monies over time: https://upload.wikimedia.org/wikipedia/en/5/58/MB,_M1_and_M2...
On the other hand, credit is very difficult to measure since people borrow and lend from each other all the time.
Interestingly, M2 is larger now than before the 2008 crash, but money+credit is smaller than it had been.