Beyond “Money as debt”6-Bank runs

Part6

Here’s the “text to speech” text and I should very much appreciate corrections in grammar and other issues concerning the language – since English is not my native language. Feel free to come with pedagogical remarks as well – where I’ve been to vague and so on. This is meant as an outline so I’m opened for suggestions.

Please refer to the number you think should be altered. It will be an easy thing to correct and replace it in the “text to speech” engine and put it back into the video.

1) So the bank reserves are the the base from which the banks expands credit. The bank has promised to pay the depositors multiple times the amount the banks have as reserves – the so called leverage. Note that the deposits are NOT money! They are only claims the depositors have on the bank on money. The only way for a depositor to receive full payment on your claim on the bank is to withdraw physical cash.

2) What will happen if many depositors withdraw their cash? The answer is of course that the banks reserves fast will be depleted. This is called bank run and is the banks worst nightmare.

3) The banks can solve this, as we already have seen , by interbank lending other banks surpluses of bank reserves. But if depositors withdraw cash from several or all of the banks the central bank needs to step in and inject cash into the system in order to restore the banks reserves.

4) So bank runs will pull off the foundation for the banks credit creation and the pyramid scheme fall when people withdraw their cash.

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