Required Reserves:

10% of Demand Deposits

0% of Time Deposits

Credit Potential - Another Look

You have seen, from the prior two examples, the extreme range in the potential for banks to expand credit that result from changes in the reserve requirement ratios, with no change in actual reserves.

The ratios shown in the final example reflect the actual reserve requirements currently in force for commercial banks belonging to the Federal Reserve System:

• Demand Deposit Reserve Ratio: 10.00%
• Time Deposit Reserve Ratio: 0.00%

As long as instruments exist that allow the use of time deposits for checkable accounts, banks have a hypothetically limitless ability to expand the quantity of money (regardless of other actions of the Federal Reserve).

Required Reserves Examples: Summary

This table summarized the range of credit potential shown in these three examples, all with the same level of actual reserves.

Reserve Ratios	Credit Potential
	Your Bank	Other Bank
Demand Reserve Ratio: 50.00% Time Reserve Ratio: 50.00% Effective Reserve Ratio 50.00%	$7,087,070	$13,481,080
Demand Reserve Ratio: 100.00% Time Reserve Ratio: 25.00% Effective Reserve Ratio 85.40%	$1,045,730	$2,379,014
Demand Reserve Ratio: 10.00% Time Reserve Ratio: 0.00% Effective Reserve Ratio 8.05%	$82,997,036	$155,032,414

I think you can see the tremendous impact that changes in reserve requirements have on the potential for banks to "make" money. No wonder the government officials never talk about reserve ratios.