A thing I think he doesn't give enough attention to is the role the Fed DOES play. The Fed indirectly controls bank lending rate through a couple mechanisms. The first is whatever rules it has for declaring a bank solvent. They've eliminated reserve requirements but now it's something like a stress test or whatever. A bank can't keep lending
I keep harping on him to spend less time in debunk and bomb the area with all the math.
He’s stripping his models down to the basics because, well, the mainstream and those under its influence are durably resistant to it. I’d rather get Principia and not 95 thesis.
He’s handicapping what he could (should) be saying.
The more likely deposits remain endogenous, the bank suffers no constrains or fiscal risk from them.
Only when people transfer to another bank or extract cash do the run into problems.
As far as reserves go, they settle between banks who minimize transfers by canceling mutual obligations and if they really need some reserves, they borrow it from the discount window (from the fed).
@GhostOnTheHalfShell
Or they repo some bonds (sell them for a fixed time to a bond trader with a contract to rebuy them at the end of the term at a specified price) typically overnight or for a small number of days. Or they sell bonds to The Fed. @economics-that-works
One should also remember there's that secondary loan market, Fannie Mae etc where home loans are packaged and sold off to insurance, pensions and hedge funds. They can take the non-monetary load asset and make it liquid.
Banks have so many ways to engineer their balance sheets.
@GhostOnTheHalfShell
Haven't checked but this kind of equation I'm assuming comes from a fixed reserve requirement. But in the modern world The Fed eliminated any reserve requirement. So now it's kinda like some monte carlo simulation of a financial downturn that you have to prove you can withstand... So the equations are less clear but it's still basically related to the probability that transfers leave your institution, which market share @economics-that-works
@GhostOnTheHalfShell
Indeed, the single island bank in a closed economy never needs to deliver anything to anyone as all transactions are just debiting one client and crediting the other. If you never need to deliver anything then you can lend unlimited amounts without liquidity issues. @economics-that-works