Banks make their money from depositors by lending to others. Banks lend out almost all the money they have on deposit and this means that there could be a bank panic if a lender can’t retrieve their deposits.
The banks are supposed to hold a percentage of every dollar in reserves, which means they have a large pile of money.
What happens if the government wants to stimulate the economy, by telling the banks they can lend out part of their held deposits or all of it?
The last time the banks were able to lend out their reserves... we found ourselves in a global financial crash!
Dr. Richard Wolff explains to Thom how all this works.
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