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Re: Hummel Inquiry

On Fri, 10 Oct 1997 James R. Olson, jr. wrote:

>Currently, the Fed sets the reserve requirements, somewhere in the vicinity
>of 15% or so, I think, so a bank can lend out about 7 times what it has
>funds to cover, just by writing checks.  One of the tools of adjusting the
>money supply is changing the reserve requirement.
------------
The reserve requirement is 10% and applies to checkable deposits
only.  This means the bank can lend up to 90% of such deposits,
holding 10% in reserve.  Your figure is the so-called money
multiplier and applies to the banking system as a whole, not to
an individual bank.  For a better understanding, you might want
to visit www.netcom.com/~masonc/essays/hummel.html

William F. Hummel

William F. Hummel
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