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The owners would not be able to spend more than their bank has in excess reserves, even if they were permitted by law to loan themselves much more. This is because banks use reserves to settle (aka clear) their debts with each other. Suppose their bank has 1B in deposits that are fully backed by 1B in reserves. They then instruct it to extend to them 9B in ...

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Each bank has a Chart of Accounts including accounts that are designated Assets, accounts that are designated Liabilities, and the difference between Assets and Liabilities is Owner's Equity or just Equity. This four page pdf paper shows a simplified balance sheet and income statement for a fictional bank: https://www.richmondfed.org/~/media/richmondfedorg/...

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Banks create real money simply by approving a loan. The intermediary "theory" is a misconception, at least regarding money creation as it works today as you point out yourself. Banks don’t lend out customers deposits. On the contrary: By approving a loan, a bank, say Bank A, creates a deposit of the same amount in the customer’s account. For all ...

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If you consider bank balances to be "money", then the fractional reserve theory makes sense. If you consider bank balances to be "not money", then the financial intermediation theory makes sense. They are two equivalent ways of looking at the same system from different perspectives. If bank deposits are "money", then of course, ...

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The money is """real""" in the sense that it's backed by "real money" even though it's not "real money". Think about this: You go into a bank and ask for a \$1,000 loan. They say yes. They update their database - now their loans are \$1,000 more and your balance is \\$1,000 more. So far, no "real money&...

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where does it actually come from? The money comes from the reserves (note not in 1:1 ratio necessarily - the ratio of reserves to money is typically very small actually) provided by central bank (or possibly from other private bank that happens to have excess reserves/capital), and the reserves themselves are created out of nothing by government decree by ...

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They differ in the type of Derivative Contract that is chosen. A Swap would be an agreement with a second counterparty, in which in your example, the bank would swap or trade their interest rate asset, with a second counterparty, and which the bank would receive another asset from the second counterparty, and they agree to hold these swapped assets for a ...

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