Banks create money, bank cards because they do legally, which would take the rest of us in jail if we tried. The most powerful tool of money creation is the fractional reserve capacity. According to the rules of its charter, the banks have to obtain only a fraction of their deposits as reserves in the form of cash or other liquid assets. sets in the U.S. Federal Reserve (Fed) to be specific for the percentage of banks to hold in reserve. The rate is usually between 3% to 10%, depending on whether the central bank wants to enlarge or reduce the money supply. Federal banks, commercial banks and savings banks (Sparkassen) has its own rules, to give money from bank to bank cards. Although I am simplifying a complex process essential point here is that banks create money by lending more in the same classification, provided the banks are required to keep part of the reserve cash deposits. It is worth noting that the Federal Reserve allowed in the rule five fifty-five times the sum of the loan and the amount on deposit. use one of the most important sources of funds for banks to earn more money, are mortgage loans. A mortgage is a bank book value, but cash is an asset. Do you want to know how the bank can you use your mortgage to create money? One option is to sell your loan to another bank. Now the bank has cash from the sale of your loan. You do not have a loan but your credit is to cash in the bank, after which the bank an asset into cash, could do with the loans to others, has transformed means. Another way is through the securitization of mortgages. In this process, sold the packages of mortgages and bank loans based on mortgages then. Securitization of mortgage offers cash to the bank and for use as capital to create new loans to other borrowers. Another way your mortgage can make money if you buy a house from a seller and the seller is paid by the bank through a mortgage, and then the seller has to pay and deposited in a bank if your bank or another. This adds more cash deposit in the money supply as a consequence of the creation of the loan to finance your mortgage. Any mortgage creates more money in the money supply, the potential in order to create more money. can This is just one example of the potential for banks, the loans created on paper and turn paper into cash loans in order to create more loans in the newspaper for more money. Essentially, banks create more money into the economy through the creation of several loans in the same deposits. 206F
The reason that the Federal Reserve to provide a mechanism to a lot of money in the economic system of control. Too much money into the system to inflate. Very little money on the outcome of the recession. If you imagine the economic system as one side of a seesaw, the functions of the Fed as a counterweight to the page. The Federal Reserve is a strange mixture of private banks with federal authority, but not really in control of the government. Works mostly out of sight to the flow of money between the very rich to keep the financial markets, banks and consumers, while responding to political pressure, both domestically and internationally. Which holds its meetings in private, making decisions affecting the economic well being of us all. Although the Fed has other tools that the process that gets the most attention concerns the interest rates banks can use, especially commercial banks. It can be a little confusing when the media announce the decisions of the Fed to change interest rates. These changes directly affect the rate of commercial banks. You may or may not affect consumers alike. This is how the process should work. If the Fed decides that there is too much money into the system, which pay interest rates of commercial banks to borrow money sets. If you decide that not enough money in the economy, lowering interest rates. The interest rate the Fed charges commercial banks has a direct impact on creating the amount of money to other banks in the whole economic system can. Let's say round numbers and that the Fed will increase the amount of money in the system. It reduces the interest rate so it is more favorable to commercial banks to borrow money. The Fed then lending one billion dollars in commercial banks at a lower interest rate. The commercial banks now have more money to lend to other banks, so that the loan of one billion dollars from the Fed of "savings", savings banks, savings banks and loan institutions, commercial banks and cooperative banks. For the loan of one billion dollars to other banks, commercial banks create five million dollars in the billions of U.S. central bank lent them. Sparkassen then the five million dollars and credit, the creation of who knows how many millions of dollars to circulate in the economic system. This process creates more money into the system. When the Fed wants to reduce the amount of money available, the process is running in the opposite direction. She raises interest rates to make it more expensive for commercial banks, money borrowed by reducing the amount of money that commercial banks lend loans to savings, which reduces the amount of money available to consumers. This is how this banking system is. The reason that the Federal Reserve will prevent the adjustment mechanisms to inflation and recession by controlling the flow of money. The current financial crisis is proof that the system is not as good as it is supposed to work. 209b
