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| This is one of those things were nuances matter immensely. Banks do create money in lending. There is a hard limit to this and it is the capital level of the bank. Firm regulatory limit. Truth is, the US banking sector as a whole is way under loaned. Overall US aggregation of all banks right now is 71.6% loan to deposit. Most banks see 85% as a where they might want to be (although some run over 100%). In aggregate, banks wish they could lend more money out right now. Not enough qualified borrowers seeking $.
So the short version is, banks dont create that $ all willy-nilly. They need it paid back and that credit risk is the ultimate limiting factor, not capital pragmatically. | |
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Fighting inflation