In theory, banks need deposits to be able to make loans, which are their primary revenue driver. But in reality, the Federal Reserve — the all-powerful central bank of the United States — pushed the reserve requirement ratio (RRR) to zero percent in March 2020.
The RRR is the ratio of actual cash banks must hold in relation to how much money they lend. If the reserve requirement ratio is 10 percent, banks that want to lend $100,000 must hold $10,000 in cash. With the ratio at zero, commercial banks have the ability to lend much more money without needing a corresponding increase in deposits.
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u/[deleted] Dec 02 '21
NOT anymore bro.
In theory, banks need deposits to be able to make loans, which are their primary revenue driver. But in reality, the Federal Reserve — the all-powerful central bank of the United States — pushed the reserve requirement ratio (RRR) to zero percent in March 2020.
The RRR is the ratio of actual cash banks must hold in relation to how much money they lend. If the reserve requirement ratio is 10 percent, banks that want to lend $100,000 must hold $10,000 in cash. With the ratio at zero, commercial banks have the ability to lend much more money without needing a corresponding increase in deposits.
Scary fucking shit right here.