BUSI 2423 Lecture Notes - Lecture 11: Transaction Account, Bank Reserves, Reserve Requirement
6 Apr 2018
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12. 1 how banks create money: creating a bank, obtaining a charter. A bank must first apply for a charter to the comptroller of the currency for a federally charte(cid:396)ed (cid:271)a(cid:374)k o(cid:396) to the state t(cid:396)easu(cid:396)e(cid:396)"s offi(cid:272)e fo(cid:396) a state (cid:272)hartered bank: raising financial capital. The next step is to raise capital by selling shares: buying equipment. It is necessary to buy office equipment, software, and other essentials to get the bank started: accepting deposits. The bank can loan only its excess reserves: clearing checks. Banks clear checks so that the bank whose depositor wrote the check loses deposits and reserves while the bank in which the check is deposited gains deposits and reserves. Clearing checks does not change the quantity of money: buying government securities. Government securities provide a bank with an income and are a safe asset that is easily converted back into reserves when necessary: making loans. Excess reserves give a single bank the ability to make loans.
