Brief introduction of derivative deposit creation mechanism of commercial banks

Derivative deposits refer to deposits created by commercial banks by issuing loans and buying securities. After absorbing the original deposits, commercial banks have the right to use only part of the cash as withdrawal reserve, and the rest can be used for loans and investments.

Under the condition that non-cash settlement is widely used, customers who have obtained bank loans or investment funds do not (or) withdraw cash, but transfer to their own bank accounts to form new deposits on the basis of the original deposits. Banks that accept this deposit use part of it as reserves and the rest for loans or investments, thus forming a derivative deposit.

By analogy, the original deposit will be expanded several times.

(1) What are the conditions for bank derivation?

1. Partial reserve system: the amount of reserves is directly related to the amount of derivatives deposits. The ratio of reserve drawn by banks to total deposits is called deposit reserve ratio. The higher the deposit reserve ratio, the more reserves are withdrawn, the less funds are available to banks, and the amount of derivatives deposits is correspondingly reduced; On the other hand, the lower the deposit reserve ratio, the less reserves are withdrawn, the more funds banks can use, and the amount of derivatives deposits increases accordingly.

2. Non-cash settlement system: Under the modern credit system, banks lend money to customers by increasing the balance of bank deposit accounts, while customers pay by issuing checks. Therefore, when banks increase loans or investments, they also increase deposits, that is, they create derivative deposits. If customers get loans from banks by withdrawing cash, derivative deposits will not be formed.

The derivative deposit ability of commercial banks is directly proportional to what and inversely proportional to what.

The derivative deposit capacity of commercial banks is directly proportional to (original deposit) and inversely proportional to (statutory deposit reserve ratio).

Deposits in commercial banks are basically divided into corporate deposits, savings deposits and interbank deposits, and corporate deposits should be the main source of these deposits.

First, loans pull deposits, which is the most common way of derivation.

The second is the pull of business models, such as financial management, trade financing and bill settlement.

The third is the pull of products, such as cash management.

What are the preconditions for commercial banks to create deposit currency?

The prerequisite is:

First, implement complete credit currency circulation;

The second is to implement the proportional deposit reserve system;

Third, non-cash currency settlement methods are widely used.

1, partial reserve system:

Also known as the statutory deposit reserve system, it refers to a system in which the state stipulates by law that the deposits of commercial banks must be turned over to the central bank in a certain proportion as the statutory deposit reserve, so as to prevent excessive credit creation, commercial banks are not allowed to use them, and the rest can be used for lending. Therefore, raising the statutory deposit reserve has a strong restrictive effect on the credit capacity of banks.

2. Non-cash settlement system: individuals can make monetary payment by issuing checks, which is the main constraint for commercial banks to create deposit currency between banks.

(3) What are the conditions for bank derivation?

There is a trade-off between the excess reserves of commercial banks and the loanable funds of commercial banks. The more excess reserves, the less loanable funds, and the smaller the ability of commercial banks to derive deposits; The less excess reserves, the more funds available for lending, and the stronger the ability of commercial banks to absorb deposits.

It can be seen that the relationship between excess reserve and deposit derivative ability is in the opposite direction and will have an important impact on money supply. Under normal circumstances, commercial banks will try to hold less excess reserves than themselves; But too little excess reserve will affect the liquidity and safety of commercial banks. Therefore, commercial banks need to make a comprehensive balance when determining the excess reserve ratio.

What is the use of banks to create derivative deposits?

The deposit of 6,543,800,000 yuan, theoretically calculated by the limit method, can reach the maximum survival amount.

The term derivative loan does not exist.

For a single bank, although corporate loans will be used up for a while, they will still be used one after another. It is impossible for a bank to obtain such a deposit.

Enterprises use loans to settle economic activities, and funds will flow into other enterprises, thus flowing into other banks, and will eventually settle down. From this perspective, except for a small amount of funds in the form of cash in social reality, the derivative deposits of the whole society can eventually reach this scale.

Because of the original drive of chasing profits, banks will not let the funds settle down, but continue to lend as needed to maximize profits. These are the primary functions of derivative deposits to maximize bank profits.

In the non-cash settlement environment, the existence of derivative deposits is not determined by banks, central banks or other institutions.

The central bank can only control and adjust the scale of derivative deposits by adjusting the reserve ratio.

Due to the existence of derivative deposits, the money supply of the whole society will expand by the scale of deposit multiplier, which plays a decisive role in the money supply of the whole society. This is the most important role of derivative deposits in real social and economic activities.

How to calculate the total amount of derivative deposits in the banking system?

The formula for the total deposit of derivative products in the banking system is:

(5) What are the conditions for bank derivation?

The factors that limit the deposit multiplier of derivatives are:

(1) excess reserve limit;

(2) Converting demand deposits into time deposits;

(3) the restriction of cash loss.

The higher the statutory deposit reserve ratio, the smaller the deposit expansion multiple value; Conversely, the greater the expansion coefficient.

What conditions do commercial banks need to create derivative deposits?

clean

Partial reserve system

These two are prerequisites for derivative deposits of commercial banks.

Functions of Derivative Deposits in Commercial Banks

Two decisive factors: ① partial reserve system: the amount of reserve is directly related to the amount of derivative deposits. The ratio of reserve drawn by banks to total deposits is called deposit reserve ratio. The higher the deposit reserve ratio, the more reserves are withdrawn, the less funds are available to banks, and the amount of derivatives deposits is correspondingly reduced; On the other hand, the lower the deposit reserve ratio, the less reserves are withdrawn, the more funds banks can use, and the amount of derivatives deposits increases accordingly. ② Non-cash settlement system: Under the modern credit system, banks issue loans to customers by increasing the balance of their deposit accounts, and customers complete the payment by issuing checks. Therefore, when banks increase loans or investments, they also increase deposits, that is, they create derivative deposits. If customers get loans from banks by withdrawing cash, derivative deposits will not be formed. Therefore, it can be seen that the excess reserve ratio, statutory reserve ratio and cash ratio (cash on hand and cash held by the public) are the influencing factors. In addition, the ratio of time deposits to demand deposits is also one of the influencing factors. In fact, it is similar to the influencing factors of currency multiplier.

What are deposit currency and derivative currency?

First of all, there are two preconditions (which must be met at the same time) for creating derivative deposits.

1, partial reserve system (loan exists); 2. Non-cash settlement.

Second, some concepts.

Original deposits: deposits absorbed by commercial banks that can increase the reserve of the banking system. Usually cash.

Derived deposit: a deposit derived from the original deposit and generated by the transfer of loans. (generally do not increase the reserve of the banking system).

Deposit multiplier (K)= demand deposit/original deposit.

Three. Factors restricting the currency derivative of bank deposits

1, statutory reserve ratio of demand deposits R(R= statutory demand deposits/demand deposits);

2. Cash leakage rate C(C= times of cash leakage/times of demand deposits)

3. Excess reserve ratio e(e= excess reserve/demand deposit)

4. Statutory reserve ratio of time deposits t(t= time deposits/demand deposits)

In an ideal situation, when all the original deposits are converted into central bank reserves, currency derivatives will end.

Under realistic conditions, when all the original deposits are distributed among various interest groups, currency derivation will end.

On the issue of base currency and derivative currency

First of all, you should understand the basic concepts, differences and connections between the two.

The base currency is the source and the derivative deposit is the flow.

Survival amount of a base currency = number of derivative deposits = base currency * currency multiplier = base currency/(deposit reserve ratio+reserve ratio+customer withdrawal rate)

1. The base currency, also known as strong currency or high-energy currency, refers to the sum of cash held by the public in circulation and banking system reserves (including statutory deposit reserves and excess reserves).

As the foundation of deposit expansion and money creation in the whole banking system, the quantity of base money has a decisive influence on the total money supply. Channels for putting in the base currency: foreign assets business: mainly buying and selling foreign exchange gold in the foreign exchange market for foreign assets. Creditor's right to * * *: the creditor's right is changed to * * * by buying * * bonds in the open market, overdrawing or directly lending to financing. Creditor's rights to financial institutions: commercial banks rediscount or refinance, and the creditor's rights to financial institutions change. The main tools for the central bank to regulate the base currency Under different economic systems, the ways and tools for the central bank to regulate the base currency are quite different. Under the market economy system, the central bank mainly controls the base currency indirectly, and usually uses three tools of monetary policy-open market business, rediscount policy and statutory reserve ratio.

2. Money supply

(1) The main body of money supply is the central bank and commercial banks (including financial institutions that accept demand deposits), that is, the deposit money banking system.

(2) The two entities create their own currencies: the central bank creates cash and the commercial bank creates deposit currency.

3) The money supply process of the banking system must meet three basic conditions: first, the complete circulation of credit money; The second is to implement the proportional deposit reserve system; Third, non-cash currency settlement methods are widely used. Under these three conditions, the process of money supply can be divided into two links: one is the base money provided by the central bank; It is the source of money supply; The second is the deposit currency created by commercial banks. In these two links, bank deposits are the largest part of the money supply, but the basis for commercial banks to create deposit currencies is the basic currency provided by the central bank, and they are always subject to the central bank in the process of creation. Therefore, the central bank has always been in the core position in the whole process of money supply.

3. The process of commercial banks creating deposit currency The process of derivative deposits is a series of processes in which commercial banks at all levels absorb deposits, issue loans, transfer and settle accounts, and constantly transfer among bank depositors to form new deposits, which eventually leads to an increase in the total amount of deposits in the banking system.

So your hypothetical situation does not exist under high supervision.