Bridger PenningtonFund Launch & Investment Expert

Have you ever heard of fractional reserve banking?

4 Jan 2023 · 1 min

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This content was created by Bridger Pennington. This content was uploaded by Bridger Pennington. This is a YouTube video titled "Have you ever heard of fractional reserve banking?" (posted 2023-01-04). The excerpt is a single-speaker explanation of fractional reserve banking and money creation: the speaker describes how deposits can be multiplied into loans (example given: a $1M deposit enabling about $14M in loans) and how Federal Reserve liquidity and stimulus deposits can amplify money creation (example: $1T in deposits could allow roughly $13T to be created). The clip is explanatory/educational in tone and appears to focus on banking mechanics and macro liquidity effects.

Chapters

This is like the craziest concept a lot of people don't know about. So fractional reserve banking allows banks to create money. If you put $1 million deposit into a bank, they're allowed to make $14 million of loans. So your $1 million in a bank account creates out of thin air, the banks create it, $13 or $14 million of capital that goes out. Now they can lend out. It's called fractional reserve banking. The reason this is allowed is because the Fed backs all these banks and it provides a huge amount of liquidity. So when the Fed announces that they're going to give stimulus checks of $1 trillion, well, in effect, if all $1 trillion of those go to bank accounts, it allows about $13 trillion to be created.