What is the legal difference between a Bank and a Building Society?ty

Thrugelmir

Mary_Hartnell wrote: »

Yes but how does each bank do its bit in increasing the money supply?

An example.

I consult for the Government who pay me £100.

This £100 I deposit into my bank account. My bank maintains a 10% reserve ratio. So retains £10 and lends you £90.

You deposit the £90 into your account. Your bank likewise retains £9 and lends out £81.

and so on as the money gets lent and redeposited.

In the space of 3 transactions. There is now £271 in circulation. (i.e. £100 +£90+£81).

A very simplistic explanation as to how fractional reserve banking works.

Basle 3 which is due to become effective in 2018. Is causing the banks to increase their capital reserve ratios. This is why banks are struggling to lend. So central banks are stepping in with QE etc so that the banks can contract their balance sheets and deleverage in an orderly fashion.

antrobus

BobQ wrote: »

.. This difference was I believe largely due to the fact that the BS was lending its customer's money....

That's what banks do as well.

Thrugelmir wrote: »

...

A very simplistic explanation as to how fractional reserve banking works.

Basle 3 which is due to become effective in 2018. Is causing the banks to increase their capital reserve ratios. ..

Although I would point out that the 'cash reserve ratio' and the 'capital reserve ratio' are two completely different things. What they have in common is that neither would exist unless the authorities insisted on it.