Talk:Fractional-reserve banking

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Example of money multiplier effect confusing[edit]

The chart does not correspond to the numbers on the graph since the graph stops at K bank loans, which makes the entire example confusing. The chart should be altered to note somewhere that eventually the total deposit size reaches 500 in theory, rather than stopping at 457

Money multiplier equation: Additional detail added - then removed as claimed "SYNTH"[edit]

In the section on the money multiplier equation, I added extra confirmation that the formula was not applicable in the real world with the text:

Indeed the Deutsche Bundesbank have stated "a bank’s ability to grant loans and create money has nothing to do with whether it already has excess reserves or deposits at its disposal". Ref: here

SPECIFICO undid the edit with the claim that it is SYNTH. Would SPECIFICO like to give an explanation? Or perhaps a third editor care to comment? Reissgo (talk) 16:57, 21 May 2017 (UTC)

It's disruptive for you to misrepresent my comment. SYNTH using a primary source. We are bound to WP policy when we choose to edit here. SPECIFICO talk 17:26, 21 May 2017 (UTC)
I have no idea how it is SYNTH, please explain. Reissgo (talk) 17:36, 21 May 2017 (UTC)
It's kind of axiomatic that bad edits may come from editors who "have no idea" -- read WP site policies. These things have been explained to you many times and you don't get command performances from other editors. SPECIFICO talk 18:27, 21 May 2017 (UTC)
Dear Reissgo: I think you pretty much gave the game away. You're saying that you added the quote as "confirmation" that the "formula" (the money multiplier equation) is "not applicable in the real world." But, that's not what the quoted Deutsche Bundesbank material says, and apparently that's not what the authors of the quoted Deutsche Bundesbank material mean. You quoted from page 13 of the Monthly Operating Report for April 2017 (Vol. 69, No. 4) from Deutsche Bundesbank. Your text, as added to the article (and then removed by editor SPECIFICO) was:
”Indeed, the Deutsche Bundesbank have stated "a bank’s ability to grant loans and create money has nothing to do with whether it already has excess reserves or deposits at its disposal.” “ (quoting from the April 2017 report).
This was a reference to excess reserves, not to the money multiplier. However, you inserted that material in a section on the money multiplier. Inserting that material in that way – without showing context – might leave the reader with the idea that you are trying to use that quote to imply that the Deutsche Bundesbank was saying something supporting your own complaints about what the money multiplier effect is, and how the money multiplier does or does not work in the real world. If that’s what you’re trying to do, that might be a prohibited synthesis under Wikipedia rules: quoting from a source and implying that the source material means something other than what the source author means.
Here is the material you quoted in the context of the paragraph in which it is found in the Deutsche Bundesbank report:
”It suffices to look at the creation of (book) money as a set of straightforward accounting entries to grasp that money and credit are created as the result of complex interactions between banks, non-banks and the central bank. And a bank’s ability to grant loans and create money has nothing to do with whether it already has excess reserves or deposits at its disposal. Instead, various economic and regulatory factors constrain the process of money creation. From the perspective of banks, the creation of money is limited by the need for individual banks to lend profitably and also by micro and macroprudential regulations. Non-banks’ demand for credit and portfolio behaviour likewise act to curtail the creation of money. The central bank influences the money and credit creation process in normal times through its interest rate policy, which affects the financing and portfolio decisions of banks and non-banks through various transmission channels.”
(bolding added).
As you can see, in the same paragraph from which you lifted the quote, Deutsche Bundesbank authors mention “microprudential and macroprudential regulations” as a limiting factor on the ability of a bank to create money. Regarding those microprudential and macroprudential regulations, the same text goes on to provide (in part), on page 22:
”[ . . . ] Elements of such [microprudential and macroprudential] regulation, including liquidity and, in particular, capital standards, have the effect of constraining lending. Capital regulations force banks to hold a certain quantity of capital against their lending, depending on the risks involved. This means that banks’ ability to expand their lending is constrained by the capital at their disposal or by their ability to build up additional capital reserves [ . . .]”.
(bolding added).
Deutsche Bundesbank is saying that capital regulations are a limiting factor for banks. The text is saying that banks must “hold a certain quantity of capital against their lending.” In the United States, for example, that is what the reserve requirements of the Federal Reserve System are about.
From page 17, footnote 14:
”Newly created or newly acquired customer deposits on the bank’s balance sheet imply an additional minimum reserve requirement because the overall volume of customer deposits generally determines how much minimum reserves the bank must maintain. For monetary policy reasons, minimum reserves must be kept on the bank’s account with the central bank; the amount of reserves that need to be maintained for this purpose is just a fraction of the deposits held with the bank, however.”
(bolding added). Notice the word "generally."
From page 24, footnote 35, in part:
The ratio of money over the monetary base (reserves plus currency in circulation) is referred to as the “money multiplier”. This, however, should not be broadly interpreted as a causal relationship between reserves and the money supply. The money multiplier is a reduced form resulting from the interaction of the various sectors when determining the money supply and the monetary base [ . . . ] For certain analytical purposes, the simplification involved here may be useful. For other issues, however, it makes sense to look at the driving forces behind the multiplier.
(bolding added).
Nowhere does the Deutsche Bundesbank report say or imply that money multiplier equation is "not applicable in the real world." They are simply pointing out its limitations. Indeed, to say that the money multiplier is "not applicable in the real world" is to over-state your case and to mis-represent what the source material means. Again, the money multiplier is not a description of an actual physical process. It is a way of estimating a possible effect of a process. If the Deutsche Bundesbank authors thought that money multiplier were not applicable in the real world, they would not have pointed out that it is "useful" as a "simplification" for "analytical purposes."
Economists and accountants use mathematical estimates all the time. An estimate is no less real or useful merely because it is an estimate. Famspear (talk) 21:06, 21 May 2017 (UTC)
Note. The text immediately preceding the material you had inserted reads that the "ceiling implied by the money multiplier does not impose a limit on money creation in practice." The point is that whether that's a true statement or not, and whether the authors of the Deutsche Bundesbank report happen to agree with that statement, the Deutsche Bundesbank quote you added probably was not intended by its authors to mean what you want to imply the quote means. That is, at least in part, why the edit might be considered a prohibited synthesis for purposes of Wikipedia. Famspear (talk) 21:14, 21 May 2017 (UTC)
I can not compete with that level of verbiage - so I give up. Reissgo (talk) 14:27, 22 May 2017 (UTC)

Money supplies around the world[edit]

This section is mis-titled and confused - I intend to remove altogether unless it can be edited into a state that actually contributes to the article as a whole. Any objections? Reissgo (talk) 11:44, 14 August 2017 (UTC)

I have restored the section. It's sourced, and consistent with the rest of the article. I don't see the problem you describe: "mis-titled and confused". If anything needs reorganizing, it's the sections on regulation, and the sections on criticisms. There are currently two each of those sections. The sections should be consolidated. Also, some of the sections should be subsections, to better organize the article, so that the article as a whole, tells a coherent story line. LK (talk) 14:43, 16 August 2017 (UTC)

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Not fringe view[edit]

User:Lawrencekhoo removed my additions claiming an "overweight of fringe views". If you study the recent literature you will find that this is no longer a fringe view but endorsed by publications from IMF, Bank or England and many others, and my addition is sourced by peer reviewed literature. Removing arguments from a criticism section should be considered POV censorship. Bolarno (talk) 05:42, 17 September 2018 (UTC)

You're pushing advocacy of a fringe view. There's a consensus of economists that full reserve banking is a bad idea. And stating things in Wikipedia's voice based on one single fringe author is against guidelines, specifically, WP:FRINGE. LK (talk) 12:07, 17 September 2018 (UTC)
I am not pushing a fringe view. I am citing new research and new findings that are not contradicted by other studies. Even those economists that want to preserve fractional reserve banking now acknowledge that the credit determines the money supply. The theoretical question of how the money supply is generated is independent of the political question of which banking system we want. Evidently, you haven't read the new literature. Please see these references:
  • Benes, Jaromir, and Michael Kumhof. 2012. “The Chicago Plan Revisited.” IMF Working Paper, no. 202.
  • Deutsche Bundesbank. 2017. “Die Rolle von Banken, Nichtbanken Und Zentralbank Im Geldschöpfungsprozess.” Monatsbericht.
  • Kumhof, Michael, and Zoltán Jakab. 2016. “The Truth about Banks.” Finance & Development 53 (2).
  • McLeay, Michael, Amar Radia, and Ryland Thomas. 2014. “Money Creation in the Modern Economy.” Bank of England. Quarterly Bulletin 54 (1): 14–27.
  • Standard and Poors. 2013. “Repeat After Me: Banks Cannot And Do Not ‘Lend Out’ Reserves.” Ratings Direct.
  • Werner, Richard A. 2016. “A Lost Century in Economics: Three Theories of Banking and the Conclusive Evidence.” International Review of Financial Analysis 46 (July): 361–79.
This may differ from what you have learned at university, but science is developing. A view that is voiced by IMF, Bank of England, Deutsche Bundesbank, Standard and Poors, and leading economists is not a fringe view. The WP:FRINGE label

is a catchall for censorship. Bolarno (talk) 05:33, 18 September 2018 (UTC)

From that IMF working paper: "This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate." You probably shouldn't describe it as "A view that is voiced by IMF." --tronvillain (talk) 14:24, 18 September 2018 (UTC)
I agree that the political view about money reform is that of the authors. But the theoretical analysis of where the money supply comes from has not been contradicted. Anyway, it is certainly not a fringe view, as User:Lawrencekhoo thinks. Bolarno (talk) 14:39, 18 September 2018 (UTC)
The theoretical analysis of the money supply doesn't appear to be fringe, but looking above, Lawrencekhoo seems to be talking about advocacy for full reserve banking. Are you two actually disagreeing, or are you just talking about different things? --tronvillain (talk) 18:53, 19 September 2018 (UTC)
Please explain what's happening? Has somebody anonymously posted a lot of copied text? Thank you for responding promptly. Bolarno (talk) 16:29, 19 September 2018 (UTC)
Bolarno, A sockpuppet account copied a 330 kB article from another wiki into this page. It's been fixed now, and the sock blocked. Alpha3031 (tc) 16:49, 19 September 2018 (UTC)
Thanks Bolarno (talk) 17:44, 19 September 2018 (UTC)
  • User:Lawrencekhoo: You keep reverting my edits without proper discussion, and I simply don't understand why. You are inventing a new reason every time. Please explain what you mean by abuse of sources. The sources are indeed saying that the textbook descriptions are wrong. Whether you agree with these sources or not is irrelevant. The German central bank and and peer-reviewed article by a well-known professor are indeed relevant sources. Bolarno (talk) 15:00, 23 September 2018 (UTC)