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One more quick jquestion about FRB

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November 23, 2010 – Comments (2) | RELATED TICKERS: AIBYY , IRE

As a lot of you know I am trying to learn more about fractional reserve banking.  So quick question that always confused me...I see articles saying AIB's loan to deposit ratio is 160%, so there could be a run on the banks because they lent out more than they have- why would there be?  Isnt 160% not bad at all?  If the reserve requirement is 10%, then the loan to deposit could go up to 1000%...what is so bad about a loan to deposit above 100?  Isnt that the whole concept of FRB?  Why would there be a run on the banks when the system has been set up to keep it overt 100%?

If the answer is obvious, my apologies.

2 Comments – Post Your Own

#1) On November 23, 2010 at 1:41 PM, Valyooo (99.33) wrote:

Damn it, I tried to edit it to not say jquestion but it submitted too fast.

In case of any confusion, jquestion means question, not some sort of female ghetto nickname

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#2) On November 23, 2010 at 2:34 PM, brickcityman (< 20) wrote:

jquestion means question, not some sort of female ghetto nickname

LOL!

... Here's my take...  FRB, like so many other things in finance is safe, innovative, and an all-around-blessing-to-humanity when "we" (as in those we consider smart and infallible) are doing it...  But when "they" (those we consider dumb, dangerous, or some combination thereof) do it it's risky business.

Cases In Point: Warren Buffet's opinion on derivatives.

 

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