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Napanee, Ontario | No That's exactly right John.
I think I confused myself on this matter thinking about outright loan demand from a customer vs a deposit based loan.
Given that most banks operate close to or at their reserve ratio limit, if there is demand from a customer for a loan (ie where no initial deposit is given), and the loan is made, the bank will dip below the reserve threshold. The loan is still done, as requirements hold that the reserve level is doesn't need to be maintained intraday. To settle the requirement, they can borrow the reserve shortfall at the end of the day from the Fed (hence being called the overnight rate) if it is not already made up on other transactions or interbank lending.
Edited by OldMcdonald 12/12/2014 13:29
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Banking, one more time....
