Fractional Reserve Demand vs Time Deposit Mechanics

Demand Deposit Immediate Claim to

Money
Assets
Reserves
$ 10.00

Liabilities
Deposits

Loans

$ 100.00

$ 90.00

Time Deposit - 3 Year CD 4% IR

Asset
Reserves
$ 10.00
Loan - 8% IR
3YR

Liabilities
Deposits

Asset
Reserves
$ 10.00

Liabilities
Deposits

$100

Loans

$112

$ 90.00

Claims to Money
Borrow Claims

$ 90.00

Depositor
Claims

$ 100.00

Bank Cash

$ 10.00

Claims
Outstanding

$ 190.00

3 Years Later

Banks attempt to earn Net Interest Margin on Fractional Reserve Demand

Deposits as well, and often charge fees as well, as reserve requirements
increase typically as do fees, but the fees on money warehousing make
sense, especially in an older framework.

$113.37
Total Assets

Total Liabilities

$123.37

$112

Net Interest Margin

Fractional Reserve banking becomes a big problem when there are runs on
banks, that is people moving out of bank cash holdings and into real cash
holdings, and when businesses and consumers need to rely on more credit
simultaneously [as a result of layoffs (consumers) and a struggling consumer
base/falling prices [businesses]).
In a Future Episode We Will Discuss the Reason Why in the Very Near
Future Money Warehousing Will Become Obsolete.

3.5%

Savings Rate, Real GDP, Per Capita Total Household & Non Profit Liabilities as % of Per Capita Personal Income
16.00%

Savings Rate

Linear (Savings Rate)

GDP

Linear (GDP)

120.0%

14.00%
100.0%
12.00%

10.00%
80.0%
8.00%

6.00%

60.0%

4.00%
40.0%
2.00%

0.00%
20.0%
-2.00%

-4.00%

0.0%

5 Year Moving Average of Savings Rate as % of Disposable Income

12.50%

10.50%

8.50%

6.50%

4.50%

2.50%

Per Capita Total Household & Non Profit Liabilities as % of Per Capita Personal Income
104.0%
99.0%
94.0%
89.0%
84.0%
79.0%
74.0%
69.0%
64.0%
59.0%
54.0%
49.0%
44.0%
39.0%
22282 23012 23743 24473 25204 25934 26665 27395 28126 28856 29587 30317 31048 31778 32509 33239 33970 34700 35431 36161 36892 37622 38353 39083 39814 40544 41275 42005
21916 22647 23377 24108 24838 25569 26299 27030 27760 28491 29221 29952 30682 31413 32143 32874 33604 34335 35065 35796 36526 37257 37987 38718 39448 40179 40909 41640 42370

Delinquency Rates Business Loans vs Mortgages

0.12

0.10

0.08

0.06

0.04

0.02

0.00
34608 34973 35339 35704 36069 36434 36800 37165 37530 37895 38261 38626 38991 39356 39722 40087 40452 40817 41183 41548
Delinquency Rate Business Loans

Delinquency Rate Mortgages

Consumer Loan Delinquency Rate

3.50
3.00
2.50
2.00
1.50
1.00
0.50
0.00

Net Loan Losses as % of Loan Values

3.50

3.00

2.50

2.00

1.50

1.00

0.50

0.00

US Treasury and Agency Securities on Bank Balance Sheets in Billions

2500.0000

2000.0000

1500.0000

1000.0000

500.0000

0.0000

Per Capita Commercial & Industrial Loans All Banks

$7,000.00

$6,000.00

$5,000.00

$4,000.00

$3,000.00

$2,000.00

$1,000.00

$-

Per Capita SBA Backed Loans

$140.00

$120.00

$100.00

$80.00

$60.00

$40.00

$20.00

$2013

2014

2015

2016

Fed Funds Rate

18.00

16.00

14.00

12.00

10.00

8.00

6.00

4.00

2.00

0.00

Survival Rate of Businesses Last 20 Years

80%

75%

70%

65%

60%

% Surviving
55%

50%

45%

40%

35%

Years Since Formation

10

Net New Business Formation

200,000

150,000

100,000

50,000

-50,000

-100,000

-150,000

-200,000

34943 35674 36404 37135 37865 38596 39326 40057 40787 41518
34578 35309 36039 36770 37500 38231 38961 39692 40422 41153 41699

Treasury and Government Guaranteed Debt on Bank Balance Sheets

2500

2000

1500

1000

500

Agency MBS on Bank Balance Sheets

1800.00

1600.00

1400.00

1200.00

1000.00

800.00

600.00

400.00

200.00

0.00