The banks are lending money they do not have

We is the world or at least BOE.

Lower is the leverage ratio. Reduce the multiple over earnings that people can borrow.

If that was the case, bankers would never have been paid a penny. I understand most people think bankers are paid too much money.

Yes the capital is destroyed on repayment......but the interest isn't......

edit.... think it is safe to say most people know bankers are paid too much.

People put their money into a bank and expect a return called interest to be paid on it.

That money is then lent out and a return on the loan is expected.

That profit from the loan is used to pay for banking overheads, interests on deposits and a dividend for the shareholders in the banks stock.

You've used Occams razor. Try this one for Occam's razor. The current system has been around for centuries and is still here, still financing improvements in living standard.

Other systems have been tried and failed.

Occam's razor tells me that the current banking system is the most effective one.

Sorry again, I misread you post.

As far as bank lending, leverage ratio is the amount of credit banks can legally create from thin air based on the deposits, nothing to do with what people can borrow base on their earnings.

The original point of a bank is to store money.
The modern bank creates credit that is underwritten by taxpayers under threat of violence.
Government officials need ever more slaves, be they young people and / or immigrant people to service this 'debt'.... which is nice for bankers.

NB... modern bankers never have produced any wealth...at all....they take it.

Neither a lender, nor a borrower be. Old fashioned, but still has some merit.

Seriously though, lending is often very beneficial. For example, it enables people to buy things now, rather than later, so that they can enjoy the use of them ahead of time. For that, they pay a fee (interest), but it's often a reasonable exchange.

Most of the problems come when people borrow too much, perhaps because interest rates look low. (Like now, for example.) Later on, the rates rise and people come unstuck. Sometimes very large numbers of people.

That's the fractional reserve ratio.

The leverage ratio can actively limit the earnings multiple somebody can borrow, essentially making lending less risky for a bank.

Hence if you want safe banks you can increase the level of fractional reserves or decrease leverage ratios.

The original point of a bank is to store money.
The modern bank creates credit that is underwritten by taxpayers under threat of violence.
Government officials need ever more slaves, be they young people and / or immigrant people to service this 'debt'.... which is nice for bankers.

NB... modern bankers never have produced any wealth...at all....they take it.

When did modern banks start?

About 1400 in Florence if memory serves. It's a fascinating history actually.

Would a bank, at that time, been bailed out by taxpayers if the owners had misjudged risk?

I guess that term 'modern' banking was a bit non specific. Rather like the words 'we' & 'lower' from post #37

When do you reckon the banking system started to fail?. ...... not even sure that is the right word.
When 'things' / metals were replaced by paper? (limited by wheel barrow volume)
When 'things / metals & paper could be replaced by numbers stored on computer. (unlimited by volume)
Just thought..... banks of 1400 were independent.... by no means did they constitute a banking system?

Thanks to you & Quady for forcing(?) me to attempt be more specific in the terms & words I use. I guess an excuse might be..... the posts would(?) be 5 times longer and therefore less likely to be read? Such a shame that, on occasion, here, there's more heat generated than light, because this place can be such a force for good.

Hard to say when it all when to crap. The gold standard was far from perfect and fiat money in itself is not disastrous.

No, it just requires discipline? ....truly free from politicians ...... but, of course, how can there be discipline if the rules aren't known / agreed?
As you said
"All we need to do is lower leverage ratios to prevent risky lending to households"
So, I use my example of the 1976 £7k house now 'valued' £200k ....... what could have been done, in the past 40 years, to keep houses affordable to the young? Leverage ratio set to house prices?

I know, they (the experts?) say interest rates are / were a blunt instrument ...... but not as blunt and useless as the system of recent years perhaps?

Banks don't need a deposit to lend money.. they create it out of thin air

The way you say that is a bit misleading.

Say Andy deposits £100 in a bank. The bank keeps 10% in reserve, and then loans out the other £90 to Betty. Now, Betty has £90, and Andy has £100 (as far as he is concerned he can go to the bank at any time and withdraw that £100). So £90 has been created 'out of thin air' as you say.

So banks still need deposits (or to borrow the money from someone else).

An alternative system would be that the banks don't lend out any money, in which case they would just be essentially a safe place to keep your money, charging a fee.

Or they could loan out your money directly, with no right of recovery for the depositor until the loan is repaid.

Neither seem to be a recipe for economic success.

Nope, check again.

"Commercial banks create money, in the form of bank deposits,by making new loans. When a bank makes a loan, for example to someone taking out a mortgage to buy a house, it does not typically do so by giving them thousands of pounds worth of banknotes. Instead, it credits their bank account with a bank deposit of the size of the mortgage. At that moment, new money is created. For this reason, some economists have referred to bank deposits as ‘fountain pen money’, created at the stroke of bankers’ pens when they approve loans"

"This description of money creation contrasts with the notion that banks can only lend out pre-existing money"

http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/2014/qb14q1prereleasemoneycreation.pdf

Would a bank, at that time, been bailed out by taxpayers if the owners had misjudged risk?

I guess that term 'modern' banking was a bit non specific. Rather like the words 'we' & 'lower' from post #37

When do you reckon the banking system started to fail?. ...... not even sure that is the right word.
When 'things' / metals were replaced by paper? (limited by wheel barrow volume)
When 'things / metals & paper could be replaced by numbers stored on computer. (unlimited by volume)
Just thought..... banks of 1400 were independent.... by no means did they constitute a banking system?

Thanks to you & Quady for forcing(?) me to attempt be more specific in the terms & words I use. I guess an excuse might be..... the posts would(?) be 5 times longer and therefore less likely to be read? Such a shame that, on occasion, here, there's more heat generated than light, because this place can be such a force for good.

Nope, check again.

"Commercial banks create money, in the form of bank deposits,by making new loans. When a bank makes a loan, for example to someone taking out a mortgage to buy a house, it does not typically do so by giving them thousands of pounds worth of banknotes. Instead, it credits their bank account with a bank deposit of the size of the mortgage. At that moment, new money is created. For this reason, some economists have referred to bank deposits as ‘fountain pen money’, created at the stroke of bankers’ pens when they approve loans"

"This description of money creation contrasts with the notion that banks can only lend out pre-existing money"

http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/2014/qb14q1prereleasemoneycreation.pdf