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Comment by zz865 | Hacker News Reader

Yes that is what I was saying. I'm trying to dispute the myth that a bank gets a deposit and lends out 10x as much that it magically creates.

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Is that what you were saying? Because I'm trying to disagree with you. You seem to say that banks are not magically creating 10x money, that it only lends out money that was previously deposited. This is not the case.

They're lending 95% of their deposits or whatever the reserve requirement is. It's just that every other bank is too, and when they loan money it almost always ends up back in the banking system just in another account. The money creation is an artifact of the same dollar getting deposited and loaned multiple times.

We agree that the amount of loans roughly matches the amount of deposits. Lots of people (like beambot I believe) think there are 10x more money lent out than deposits.

Nope. GP said that storing money was expensive. I was simply alluding to the fact that (a) supply of physical dollars << assets on the balance sheet - i.e. fractional reserve, and (b) a trusted authority can 'print' money on demand so long as people have faith in its viability - i.e. central banks & federal reserve.

Bank financing is counterintuitive: deposits are actually liabilities, and loans are assets... but banks also routinely borrow money (e.g. from the Fed) well in excess of their book value. For example, JP Morgan's current debt-to-equity ratio is 1.675 [1], meaning that they are also (in a sense) "mortgaged" well beyond their net assets. It's debt all the way down...

[1] https://ycharts.com/companies/JPM

Thanks I've been working in banks for 25 years now and have an accounting degree. JPM debt equity ratio is about 12. They're supposed to be highly leveraged, that is how banking works.

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