Caixin OnlineFinance & EconomicsTop Stories Finance Bank Lending Behavior and the RRR
04.10.2012 17:49

Bank Lending Behavior and the RRR

How can banking regulators boost the lending capacity of commercial banks? A quick look at the current reserve requirement ratio in relation to loan-deposit ratios gives clues to the answer
By Ye Xiang
 

If we compare the financial system to a machine, the central bank's monetary base can be seen as production input and the broader money supply as the output after processing. What are the returns on a 1 yuan input? It is determined by the structure of the machine, and most crucially, by the reserve requirement ratio.

Without accounting for cash leakages, the money multiplier is the reciprocal of the reserve requirement, for instance, if the RRR is 20 percent, the money multiplier is 5. There is no direct link between the money multiplier and the loan-deposit ratio, but as a part of the financial system, the loan-deposit ratio also has an impact on monetary expansion.

We hope you have enjoyed your free articles for the month
REGISTER to get 5 more free articles, or SUBSCRIBE to get full access to Caixin
Already a subscriber? Log in now
COMMENTS (0)
Sign up to receive our free daily newsletter
Latest Issue
On the Cover:

View From The Top

Here's What Billionaire Li Ka-Shing Sees That We Don't About Hong Kong And The World


Issue 76
April, 2014

POPULAR GALLERIES

SUBSCRIPTIONS

Caixin-China
Economics & Finance
Latest Issue:
View From The Top
Here's What Billionaire Li Ka-Shing Sees That We Don't About Hong Kong And The World
Issue 76
04.01.2014

Subscribe       |       Newsletter        |        FAQ