Maybe you can explain this message from the Federal Reserve [0] to me, because I must be misunderstanding.
> As announced on March 15, 2020, the Board reduced reserve requirement ratios to zero percent effective March 26, 2020. This action eliminated reserve requirements for all depository institutions.
I've been swayed by the MMT videos on youtube which I know are controversial, but it seems to me that when a bank makes a loan, its deposits on-the-books increase, they do not have to have deposits equal to liabilities, and in fact a loan is not a liability to the bank, it is a liability to the borrower. Am I wrong?
There are several different kinds of requirements that banks have.
The "reserve requirement ratio" basically means that for every $1000 the bank has in deposits, it is required to keep $X in its account with a Federal Reserve bank. Very specifically, it has to be money sitting in that account--a literal stack of $20 bills doesn't count for the reserve requirement. This has dropped to 0% because the Federal Reserve figures there's better ways of maintaining bank solvency.
Instead, most attention nowadays is paid on the capital ratio. This basically says that the bank needs to hold $X equity for every $100 of risk-weighted assets. My understanding is a little fuzzy here, but I believe that the equity here is completely separate from what's normally counted as assets for a bank.
> As announced on March 15, 2020, the Board reduced reserve requirement ratios to zero percent effective March 26, 2020. This action eliminated reserve requirements for all depository institutions.
I've been swayed by the MMT videos on youtube which I know are controversial, but it seems to me that when a bank makes a loan, its deposits on-the-books increase, they do not have to have deposits equal to liabilities, and in fact a loan is not a liability to the bank, it is a liability to the borrower. Am I wrong?
[0] https://www.federalreserve.gov/monetarypolicy/reservereq.htm