Does the amount of money the federal reserve creates have to be based on the amount of reserves in banks?
I think that’s what a friend of mine was trying to say.
How exactly is the money created?
I’m sorry this question has been asked a thousand times…and I’m sure I’ve asked it a thousand times…but my memory is horrible.
OOOps, misread the q.
I dont think the Fed is bound by any reserve requirements. It does however, with the FDIC, set the requirements for all other banks. Banks are reveiwed regularly and required to set aside a certain amount of money based on how risky its assets are. If a bank has all its assets in real estate loans it loan loss reserves will be higher than a bank with fewer of its assets in real estate loans.
There are also requirements on how much money you have to keep on deposit with the Fed or other banks, which is a percentage of your total DDA, Savings and other deposit accounts.
As far as how the Fed creates money… take a look at your other thread.