Banks Have NEGATIVE Reserve Ratios

Posted 24 Jan 2008


The pictures above are from bank runs in 1907 and 2007. A bank run results when depositors want all their deposits at the same time. Often fear causes the bank run as the last one to the bank doesn’t get their purchasing power.

The ratio between reserves and deposits is the reserve ratio.

For example, the average European bank has a reserve ratio of 18% so for every $100 of deposits the banks have $18 of reserves. Banks are required to keep reserves according to a specified ratio.

The Federal Reserve published on Jan. 17, 2008 the bi-weekly report Aggregate Reserves of Depository Institutions and the Monetary Base.  I encourage you to review this report to see the actual numbers and trends.

A bank’s reserves is equal to the sum of borrowed and non-borrowed reserves.  Because the Federal Reserve acts as the lender of last resort the Federal Reserve system acts as one bank.

So, where are the required reserves coming from?  The Federal Reserve is using its own US Treasuries or printing the money out of thin air as shows up in ‘Term auction credit’.



This combined increase in one month of 81,613 compared to the monetary base of 820,331 is about 9.9%, or 119% annually, of the total money supply.  This is very serious inflation.  However, the contraction of credit at the higher levels of the Exeter pyramid is extremely deflationary.  It appears we have entered a global Kondratieff Winter.

The Bottom Line

The current US banking system is so capital impaired that they owe $18.29 to the Federal Reserve to meet the extremely low minimum required reserve ratio of ~4% of deposits. 

To continue meeting their required reserve ratio the banks are borrowing about $12.5B per week that the Federal Reserve prints out of thin air increasing the money supply by 10% per month.  Is your cash safe?  You may want to consider GoldMoney as they maintain 100% reserves and do not engage in fractional reserve banking.

As the current system continues its implosion alternatives will become more attractive. Watch this video for an Introduction to GoldMoney.


After deeper research this is the first time ever in the history of the Federal Reserve that the non-borrowed reserves number has ever gone negative. The Fed has always been in control over the individual banks and held moral suasion over them which prevented them from borrowing to meet their required reserve ratio.

Bernake has said the ‘loans’ will go on as long as necessary and he has been increasing the size of them.

What makes you think the banks would ever want to repay these loans? They are a cheaper source of capital than anywhere else. The banks have now shifted the cost of their reserves onto the Fed who is then printing the reserves out of thin air. Because the Federal Reserve system functions like one big bank (whose required reserve ratio is now being printed out of thin air every week to prevent a bank run) and because the Fed has lost all control, they no longer have any moral suasion power, therefore hyperinflation is the only option to a bank run.

We've now officially entered the Weimar Germany phase.