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Mostly banks borrow from depositors and from the capital markets.

Reserve requirements of that type still do exist in some places (though in some places they've been abolished) but don't really play much of a role in determining how quickly money supply grows any more.

Control over money supply growth is mostly down to interest rates these days.

Similarly, the role reserve requirements used to play in protecting depositors has been replaced by the various "Basel" rules which determine what sources of funding banks can use to fund their loans which depend on the loan book's credit quality, tenor etc.



Banks don’t borrow from depositors.

Loans create deposits and the deposits just change ownership tag from then on.


I mean, they do, to the extent that people walk into banks and hand over wads of cash for deposit. I.e. it happens, but increasingly rarely.


How did you get the wad of cash in the first place and what is it?

A wad of cash isn’t money. It is nothing more than a receipt for a deposit held at an institution somewhere - that was created as an advance in the past in response to an equivalent loan.

When you deposit a wad of cash in a bank, the bank takes ownership of the deposit in the institution and creates a new deposit in the bank for you. It’s just another loan creating a deposit.


A deposit is literally you lending money to your bank, payable on demand.


That’s not the point. The point is where what you have came from in the first place.

A loan creates an advance. That advance is the bank owing a person in return for the person owing the bank.

The advance is then used to pay you so you have a deposit. All that does is change the ownership tag on the advance.




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