In the long list of concepts which the name is extremely misleading, that of "bank reserves" would have a prominent place. When one uses the word "reservation" for an individual, household, business or even an animal, it means that we have set aside to cope in the future to potential hard times. The mechanism is absolutely different for banks.
Banks have a legal obligation in the euro area to maintain the equivalent of 2% of their deposits and savings in reserve at the European Central Bank. For example, a bank that would be 1 billion euros of deposits should maintain 20 million euro in central bank reserves. All that the bank has on deposit at the central bank or in its coffers in addition to these 20 million represents its excess reserves. To maximize their profit, most of the time, the vast majority of banks minimize their reserves surplus. Suppose our imaginary bank has 1 billion and 21 million deposit reserves. 20 million would represent the minimum legal reserves and $ 1 million surplus. Suppose that depositors decide to withdraw $ 5 million. The bank had deposits of 995 million and 16 million reserve. The reserve ratio increase to 1.6% or below the legal minimum. The bank, if it does not find immediate funds to be deposited at the central bank is illegal.
We can see the inconsistency of the term "reserves." The bank keeps money aside that she can not touch any loss or withdrawal under threat of massive illegal. It's like if you were asked to keep aside 100 euros you could never touch. Can we call them "reservations"? What good are money that can be used for?
In reality, these "reserves" are not meant to be reserves. They are simply a tool of monetary policy. More reserves are low, more banks can create money. Plus they are stronger, the central bank control increased the money supply in circulation. Reserve requirement rate depends in theory the bank multiplier. In theory, if the minimum reserve is 10%, 1 euro issued by central bank may turn into an amount between EUR 0 and EUR 10. If it is 2%, between EUR 0 and EUR 50. If it is 0%, 0 euro and euro infinity.
Some countries like the United Kingdom and Canada have simply abolished the legal requirement of reserves. United States, if the legal minimums still exist officially, they have effectively disappeared. By law, banks must keep in reserve 10% of their deposits (current account) and 0% of time deposits (savings). Yet in recent decades, the funds deposited on current account have evaporated and been transferred to "false" savings accounts. Current accounts represent only a fraction of the money supply. The relative share of the savings accounts has increased greatly cons. In fact, Americans deposited on current account savings account disguised as allowing banks to circumvent the regulation. We can therefore say that the minimum statutory reserves have been also abolished in the United States by the passivity of the legislators on this issue.
Faced with this type of circumvention, the central bank has decided to impose a legal minimum reserve of 2% for both savings accounts and current accounts. Thus, there is no incentive to disguise the current account savings accounts. But what about those meager reserves? 160 small billion to cover 8000 billion deposits on current account and savings account. 160 billion! This represents some 500 euros per capita euro area. 500 euros per capita, while that banks have in turn hire and what with our savings!
When the real "reserves, excess reserves, with which banks lend and face the withdrawals, they are only a few billion euros or just over 3 euros per capita. To explain things clearly, if all the inhabitants of the euro area would remove 3 euros at the same time, without intervention by the Central Bank, much of the banks would find themselves automatically under the legal minimum reserve. 3 euros per capita, the flexibility of banks. Our language has not I think of a single term to describe this situation: "the foutage of mouth."
How does our banks with so little money? Today, most communication is by check, bank transfer or credit card. In fact, requests for cash withdrawal are quite limited. The amounts of each incoming and outgoing bank cancels most often so that very little money usually comes out of the banks. If a bank falls below the minimum statutory reserves, it will find the funds normally available on what is called the interbank market. Banks with excess reserves to lend to those who lack the reserve. But if gradually, people derive more and more tickets, and reserves tend dangerously towards the legal minimum. The Central Bank intervenes and lends to banks or buying securities. Basically, without the continuous assistance of the ECB, the system can not stand.
Knowing that the loan system usually works well and the Central Bank is there to come to the rescue at the slightest problem, they grow their lending to the limit. Airbag 0. How surprised by the violence of the shock wave from a falling investment bank Lehman Brothers as midsize. Without a market for interbank lending, banks may find themselves in a few hours in great difficulty because they have provided virtually no safety margin in cash. After the bankruptcy of Lehman Brothers, a general distrust has set in, nobody knows the other's exposure to that bank. Basically everyone feared that the other will go bankrupt and banks have stopped lending to each other. We must realize that in light of banks' excess reserves, transfer of reserves of a few million euro can put in the red banks weighing several dozen billion euros of deposits. The Central Bank should intervene in a few hours to save the whole banking system by lending them money or buying securities (usually government bonds). Central banks are kind of Nanny State banks to flying to the rescue of our teenagers are our fiery as when banks can not meet their commitments.
How to live under the illusion of a free market, where the daily intervention of an instance government is necessary for the survival of our economic system. Impose minimum reserves larger would not solve the problem. Indeed, they are not "reserves" as we have already shown. Impose compulsory excess reserves would also be meaningless. For reservations are "reserves" should be able to touch it when you need it.
No, the only solution is to separate banking functions. The applicant on account does not want to take risk. He wants to file Money and power have when it sees fit without relying on the investment policies of banks. They are 100% reserves are necessary as we stand on this site for such filing. The applicant on account needs a "digital cash". The "digital cash" has the same properties as a ticket or room, but in digital format. Basically this means that all money is in reserve accounts of the European Central Bank. The transition has been explained at length in the note 'Advocacy for a monetary revolution. " It was explained precisely the great American economist Irving Fisher in "100% Money" and Nobel Laureate Maurice Allais French economy in the "capital tax and monetary reform."
The applicant hopes on savings account interest. This efficiency means taking risks. This risk-taking, he should wear it and it will be realized by choosing the bank where it will deposit its money. By depositing money in a savings account, the customer is an "investment" with the risks involved. Free the bank to fix also the amount of reserves they want. This are the minimum reserve of 0% must be imposed on savings account. We can never prevent the company that takes a risk to go bankrupt but you can not accept that our economic system depends on the survival of a particular bank. By imposing 100% reserve is to protect both the applicant and the whole economy of the major risks of financial meltdown.
Can we continue in a hybrid system where a triple play disempowerment:
- Banks can take Risk phenomenal with its depositors' money by keeping airbags very low, given that the Central Bank will always be there to lend him money if necessary.
- leaving the state banks to lend 98% of depositors' money on current account delegates the control of money to private institutions.
- The applicant has knowledge that the state guarantee will put his money anywhere without seriously considering if the investments of the bank is serious or not, looking just how much return it offers.
The proposed system would involve a threefold responsibility:
- Banks are empowered because they have to bear the costs of their bad investments or taking excessive risk. The "current account management" would be 100% secure because the money would stay warm in the reserves. The "management savings account" it would be risky and mismanagement lead to bankruptcies.
- The state would have to defend at all costs money to its citizens and prevent banks from circumventing the law by disguising current account savings accounts (by preventing transfers by check or credit card since such filing for example). The state would take the same time full control of currency and would be responsible for "total" control of its value.
- The applicant assured knowing that no state would protect the savings banks in bankruptcy would have to choose carefully or the bank invests its money. Instead, he would know that its current account deposit would be covered by wilderness and thus available at any time regardless of the situation.
