At the end of the day, all of it is paper with a bunch of random numbers, the fractional reserve system is barely 100 years....As long as people are willing to work all the time until death and don't mind paying interest on their mortgage, the pyramid scheme will continue and the bank will be needed. The key in this system is to make sure the people are happy by making them think they're happy.
There is another way to control the economy through pension saving. It has worked in the United Kingdom and could work elsewhere. Although there are other operations that the central bank performs they could be achieved through private wholesale banks instead. Read the below article. http://morganisteconomics.blogspot.com/2011/10/is-bank-of-england-failed-institution.html
This is from your blog: The amount of debt that can be lent by banks is set by the central bank through the reserve requirement. Now, I'm no expert on British Banking and the BOE. But I have no reason to believe these British institutions don't in large part mirror those of U.S. Banks and the U.S. Central Bank. I can assure you that what you have written on your blog bears no relation to U.S. banking practice, and I therefore have serious doubts that it has any relation to British Banking either. In the U.S., and I would guess in any country that uses fractional reserve banking, no loan officer takes into account their bank's reserve account balance before making a loan! Loans made are net bank assets, whereas a bank's reserve requirement, in countries that have a reserve requirement, is determined by its liabilities. Any temporary affect making a loan might have on a bank's reserve account would be quickly resolved via the overnight loan facilities. The Central Bank does not use the reserve requirements to set the amount of money Banks can loan. The amount of money a Bank loans is determined by demand and the Bank's underwriting requirements.
You are looking at it as an individual loan agreement rather than what amount of money the bank is allowed to lend overall. The bank has to hold a certain amount of money in reserve to make sure it can pay depositors' withdrawals, if they lend too much out it diminishes their ability to maintain the reserve requirement. As the central bank sets the reserve requirement to make sure depositors' withdrawals can be made it sets the limit of how much the bank lends out to customers with the funds it has available. The alteration in the reserve requirement is a known tool used to control the rate of lending to control economic growth and inflation, although they have been using open market operations in preference in recent years.
You've intermingled the correct with the incorrect The reserve requirement does not in any direct way restrict the amount a bank may lend out. Because loans are assets they ease a banks ability to meet its reserve requirements. Assets can be sold and also used as collateral. Loans the bank has made are not the bank's liability. They are an asset to the Bank and a liability to the borrower. A banks reserve requirement is based on its liabilities; not its assets. Whenever a U.S. bank is short on reserves, as long as it's solvent, it borrows at the fed funds rate what it needs to bring its reserves to the required amount. If for some reason it can't borrow from other banks, the fed will make the discount window facility available. But, so long as it's solvent, the bank will always be able to meet its reserve requirement regardless of the amount of total lending they've done. You are probably not aware that some countries don't have a reserve requirement (England may be one of them!) Canada, and I believe Australia too, has no reserve requirement. In the U.S., the reserve requirement is a part of the overall mechanism the Central Bank uses to target the wholesale price of money, what's called, in the U.S., the fed funds rate.. But there are other mechanisms used for this, Canada would be an example of a country that uses an alternative mechanism... You have much to learn about Banks and Banking. No banker checks their bank's reserve balance before making a loan. May I suggest you get busy reading.
The statements I have made have been correct. When people borrow money it enables a greater level of consumption and increases demand within an economy. When banks are allowed to lend more money consumers or businesses can borrow more money to consume with. When the reserve requirement is set banks can only lend a certain amount of money that they have in their possession. Assuming they wanted to lend more money they would then have to borrow money from another bank to be able to lend the newly added funds, which increases the amount they have in their reserve meaning they have a bigger reserve allowing them to lend more before it hits the reserve requirement. For the bank to be able to lend more money outside of the existing allowable amount they have in their reserves they have either had to borrow from another bank or the central bank. This process means until the point that they borrowed money from another entity they have a limited amount of funds available to lend out as a result of the reserve requirement the central bank sets. If more funds are borrowed from another entity it will increase the size of the reserve and allow further lending, however it comes at a price. The price of borrowing from another bank or the central bank is the interest payments the bank which has borrowed has to pay. If the interest rate is higher it means the price of the borrowing is greater and deters borrowing both from the bank's perspective and the consumer or business who will borrow money from the bank. By setting a reserve requirement for a bank to hold assets the central bank protects depositors who can guarantee the withdrawal of their money, it also adds another mechanism where if the bank wants to lend more money out it has to follow another process. The bank can only lend more money out if it expands its reserve enlarging the amount it can lend before it reaches its reserve requirement. The process of expanding the reserve a bank holds is determined by the ability to borrow from either other banks or the central bank. Depending on the price of borrowing to enlarge the bank's reserves and the willingness of either other banks or the central bank to lend at certain prices (interest rates) the amount that can be lent by the bank to be lent out to consumers or the amount consumers want to borrow at those prices can alter, this can speed up or slow down the economy. I feel that you are missing the point that there is another process that is part of the relationship between banks, the central bank and the lending process. This is the enlargement of the reserve which allows a greater amount that can be lent before reaching the reserve requirement, which necessitates the additional borrowing and further interest payments to enable the function available to the bank before it expanded its reserves to be within the reserve requirement when further lending is desired. In short banks can lend out more money when they have a reserve requirement, but only when they enlarge their reserves so they are still within the reserve requirement the central bank has set. By setting a reserve requirement the central bank limits the amount of lending a bank can perform with its own reserves, the reserve ratio can be altered to influence the economy. If the bank wants to lend more money when it has hit the reserve requirement limit it can but it has to borrow from somewhere else, this comes at a price which is the interest it has to pay. There are two mechanisms related to the reserve requirement the first is what the reserve ratio is, it can change allowing more or less to be lent from the banks own reserves. The second it the enlargement of the reserves to keep the bank within the reserve requirement but able to lend more out, which requires borrowing from other banks reserves. Both are used.
No, No, No period! Banks borrow at the wholesale rate and lend out at the retail rate. They borrow what they lend! If they have too many non-performing loans they can get into trouble. But that's what they do. When a bank makes a loan it is a net asset to the bank.