Ireland bails out its banks and now Ireland's bust. Is there a lesson?

you use the words 'they don't have enough deposits'.... who do you mean by 'they'?

each bank does have enough.... collectively they don't 'have enough'..

the essential bridge is that the money paid out by bank one to buy the house....is then put back into bank two** by the seller... bank two can then lend it again to another would-be house buyer... minus a percentage called the reserve ratio....

this seems to be an idea that mel finds difficult

(** bank two can be the same bank as bank one)

see the link below if you seriously want to understand the reality

depends on what you mean by 'a scam'

Thank heaven for small mercies!

Well it may be true I have a firmer grasp of quadratic equations but:

Since the required reserve ratio in this country is 0%

However, in practice, banks keep to a ~3% ratio.

All this means is that 3% or the total banks' holdings on deposit is unavailable at any one time for lending. Deposits are made in cash and the amount of cash in circulation does not vary wildly (in fact hardly at all) The idea that as cash bounces around the system the proportion of it actually available for lending falls is a clear nonsense. If I sell a house fro £300000 then £300000 is what I put into my account regardless of whether my buyer withdrew it from his savings, borrowed or even stole it.

The reason banks need a reserve ratio, the reason that a requirement was introduced back in the 19th century, is primarily to smooth out variations in customer deposit and withdrawal patterns. To ensure that when you go into a bank to draw money out or slip your card into an ATM the cash is there. It can't be in two places at once.

that's not likely to help you

if that were the case there would be no constraint on the quantity of money

the control is not directly by %age in the uk at present...it is via capital requirements supervised by the boe... basel 2 and 3 and 3+ are now being implemented over time by the boe...

it still amounts to a reserve ratio though it has some flexibility

the control of the reserve ratio is operated by two or three mechanisms including control of the total money supply via what you will probably call central bank rates or interest rates(of which there are several)

central bank reserves have been operated more flexibly and with more sophistication over time...but that isn't equivalent to them being zero... of course you could try using quadratic equations to work it out

regards