Banking 11: A reserve bank 

Bro I just love how you dont give a sh*t about your paintings. Pure info, no BS. Thanks man, best series on the topic on YT for 15 years.

I'm trying to get to modern central banks incrementally. We'll get to the workings of the modern Fed in a few more videos.

You bring up a good point. I think a lot about that and am going to address this issue once we get through the mechanics of how everything works.

thankyou so much for this video, for so long I have been wondering what the hell a reserve bank is etc etc but your videos are so informative. Good job on explaining it all

Frankly, they don't teach you this in business school (or anywhere in the formal education system as far as I can tell).

Hey! Thanks a lot for these series of videos, they helped me a lot. Do you know what are the best introductory academic books out there that explain the functioning of banks as clearly and simply as you did? The ones I found do not go too much into the basics and focus on more complex issues of financial markets and other things... Thanks a lot!

Initially regional banks and their notes could not create many more notes than they had reserves. If they did, people would begin to notice an excess of notes and would look to invest it. Since it was likely that it was locally saturated with capital they would invest outside the region. Since the notes were only good for the region, bank notes would be redeemed for specie and gold would begin to leave the bank since only gold was accepted outside the region.

Sal! Is there a test at the end of this series? If there is do we all get an MBA? Lol. Thank you for explaining all of this it is truly appreciated. I think you should open up a university and issue degrees to everyone. Thanks professor.

@angpetru No, the "excess" loans are not a "problem" at all as long as (1) they are collateralized (that is, the borrowers put up some form of insurance against default and their creditworthiness is scrutinized) and (2) the depositors know what is going on (as they do!). The "excess" loans are essentially just a way for the depositors to let the bank earn more interest using their money (by getting involved into more projects) than it could otherwise do.

Very, very well explained. Watch also MONEY AS DEBT, if you haven't yet, to really understand the implications of such a banking and monetary system which basically leaves the money we use at the mercy of the banking cartel. Sal is somehow neutral to that. But very good work indeed.

all this time i never fully understood this concept until you explained it!

... the problem today is that the banks don't hold anywhere near the amount the depositors actually put in, and the depositors of today are not informed of this and don't understand that some (though in modern times it's actually almost all) of their money is currently being lent out (hence we get runs on the bank). Either the banks need to make it explicitly clear to their depositors what they are doing with their money (best solution) or they need to keep large % reserves on hand.

Thank You very much for the videos. I find this much more helpful than my macroeconomics class!

Hey Sal, Your videos are great and explain banking in a nice and simplified manner. However, and I'm not bagging you just some constructive criticism, you get side-tracked alot and waffle on a bit. Keep the point you are trying to make clear in your mind and keep going at it. Like I said I find your videos really informative and easy to understand, just trying to help you improve.

It's taught in college Economics courses. The course I took was called," Money and banking."

thx dude u r better than all those boring teachers!!

This is very interesting, thanks, Sal, for expaining! Just why all this is not taught in business schools, formal education? Any ideas?

tHanks for posting thgese videos. There is a lot of misinformation about the motives of centralizing currency and this is a simple view that opposes all the conspiracists

Oh yeah. The sweet soud of your voice without the noise.

Thanks Sal! YAYYY!!! In Sal We Trust!!!

Ah, this makes sense. I thought that banks loaned directly to one another, but I can see how this would be more convenient and transparent. Speaking of transparency, what keeps banks from lying about how much reserve they actually have? Especially in a fiat system?

brilliant as always. thanks for this :)

So if the (non-central) banks no longer have gold but have checking accounts with the central bank, what interest is at play (do banks loan the money from the federal reserve at interest, or does the federal reserve pay interest to the banks for the gold deposits)? I'm guessing this will be answered later but I thought I'd post now in case anyone else was thinking about the same thing. Thanks for this vid series.

youre just awesome men thanks

I thought the fiat currency system was deregulated from gold several years ago and therefore this example would have no relevance to today's central banking practices. I am aware that if the government defaults on the loans there is a emergency contingent plan to remove all gold from central banks though.

Hey that's great :) If possible, and if you find any, try to lay down some form of money/currency system that is workable under an anarchistic (anarcho-capitalist/free market/polycentric order) society.

brilliant explanation.

The problem I see in your interpretation of this video is the fact that these banks are working under a policy of fractional reserve at all. The original purpose of banks was to safeguard money (gold) and make loans out using some small part of the money they are holding. In exchange for loaning out their depositors money for a short time the depositor (knowing what is happening with their money) gets some of the interest paid on their loaned money.....

@exquisitedoom Actually, no. Market creation of the central bank is still "evil". There is little need for the creation of the central bank if there wasnt fradulent fractional reserves in the first place. What would the banks need insurance on if they had all the money already? The only function a true, non fraud, market created central bank could do is supply a uniform bank note.

I don't understand one thing you are showing people taking loans have the account in same bank from which they are taking loans from But what will happen to balance sheet if the borrower have account in different bank

I do not know how much time I invested in these videos. But, I made it to this part. I have a strange feeling things are going to get fucked up.

Think about it twice..You think you really need a separate control over leverage ratio? Wont the reserve ratio requirement implicitly do that?

I can't wait..

soo does this mean that a person can take their bank notes to the central bank and get gold? since the bank notes represent claim to that gold....

so basically the central bank is giving a sort of interest free loan to the banks in place of the gold. like gold bonds?????????????????????????

good stuff

'they don't teach you this in business school' - economists (a higher species of student frankly) get taught this.

I wonder if Sal thinks this monopolistic system where one private cartel has the sole authority to issue currency and can print money out of thin air, and have no asset backing in Real money is the best we can hope for.

End The Central Reserve Bank! lol

Because too many people would find out about it.

I'll keep my money in Sals bank!

@balanemate they teach this at yale for sure 100% exact material .. not sure for other university .. if you are still in a business school or finish MBA that still do not understand this at all, you better get your money back for real .. you've just wasted too much time, energy and money being fooled by education institution

Aren't the lesser 'colonies' delivering lesser notes? Bahamas, off shore gambling efforts.... Mathematics doesn't deliver cheaters....