Sunday, 18 October 2015

Dramatic fall in loans as % of deposits at US banks.

The chart is from this Wall Street Journal article.

Basically this just reflects QE, I assume. In a system where (to take the extreme) commercial banks had no reserves, then loans would equal deposits. In contrast, where the central bank feeds $X of base money into the private sector by whatever means (QE or public spending funded by the printing press), then there will be $X of deposits unmatched by loans.

The only thing that puzzles me is why the fall in the loans/deposits ratio has leveled off in the last two years or so: after all QE in those years continued at about the same pace as in earlier years didn’t it?

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