The American banker said It

Ok, Warren Mosler is a bank owner. He owns a small bank in the US. The discussion was all about banking operations. Following is my questions to Warren Mosler regarding bank loans and reserves.

Kristjan: Warren, can you tell us all how exactly the loan is created in your bank?

Warren Mosler:

simplest case, you come in for a loan and tell us you just want to keep the funds in your checking account for a while

if your credit is ok, we approve the loan at some interest rate over our cost of funds

you sign the loan documents and we increase the balance in your checking account by the amount of the loan

the signed loan documents are the bank’s asset, and your checking account balance the bank’s liability

that’s it!

Kristjan: Thank you Warren. And where did those numbers come from that are in my account now?

Warren Mosler:

the same place the stadium gets the 3 points when you kick a field goal

:)

Kristjan: Thank you Warren, and you don’t worry about the reserves while you are adding those “points” to my bank account?

Warren Mosler:

No, the reserve requirement, if any, is calculated later based on total deposits for the prior statement period

and if we don’t have enough reserve balances we either move cash from another account, borrow them in the fed funds market

we are sensitive to the general cost of reserves, as that might play into what we charge for loans, but not quantity or availability.

You heard him! The banker has spoken. So don’t even start with that money multiplier and “reserve requirement is controlling money supply” bs. Welcome to the real world!

Warren is also President of the Valance Company and he is building supercars called the Mosler MT900

 

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