00:01
Hey guys, and welcome to another economics example where we're going to be talking some more about the federal reserve or central banks.
00:08
So for this example, we're going to be talking about why banks loan money.
00:14
So for this example, not actually central banks at the federal reserve, just banks in general.
00:19
Why do they loan money? so we'll start with, you know, say you deposit $10.
00:28
So you deposit $10 into a bank.
00:33
Always love the $10 deposits.
00:35
It keeps things simple.
00:36
And of course, we've been using a reserve ratio of 10%.
00:40
So we'll do that here.
00:42
So their required reserve that they keep is a dollar.
00:48
So why this is the minimum amount that the central banks or federal reserve is requiring banks to keep.
00:56
So why do they only keep a dollar? why not keep your entire $10? and the main reason is because they don't make any money off of what they keep in reserve.
01:08
Because actually, a lot of times they're losing money because banks will often incentivize clients to lend money or, you know, keep their money with them as opposed to other banks by paying them some kind of small fee.
01:28
It's usually very minuscule...