Editing Monetary reform (section)

===Reserve requirements===
{{Main|Fractional-reserve banking}}

Banks typically make loans to customers by crediting new demand deposits to the account of the customer. This practice, which is known as [[fractional reserve banking]], permits the total supply of credit to exceed the liquid legal reserves of the bank. The amount of this excess is expressed as the "[[reserve ratio]]" and is limited by government regulators not to exceed a level which they deem adequate to ensure the ability of banks to meet their payment obligations.  Under this system, which is currently practiced throughout the world, the money supply varies with the quantity of legal reserves and the amount of credit issuance by banks.{{citation needed|date=April 2021}}

Several major historical examples of financial regulatory reform occurred in the 20th century relating to fractional-reserve banking, made in response to the [[Great Depression]] and the many [[bank run]]s following the [[crash of 1929]]. These reforms included the creation of [[deposit insurance]] (such as the [[Federal Deposit Insurance Corporation]]) to mitigate against the danger of bank runs.<ref name="mankiw3"/> Countries have also implemented legal [[reserve requirements]] which impose minimum reserve requirements on banks.<ref name="mankiw4">{{Cite book|title=Macroeconomics|last=Mankiw|first=N. Gregory|author-link=Gregory Mankiw|year=2002|edition=5th|publisher=Worth Publishers|location=New York|isbn=0-7167-5237-9|page=[https://archive.org/details/macroeconomics00mank_0/page/487 487]|url=https://archive.org/details/macroeconomics00mank_0/page/487}}</ref> Mainstream economists believe<ref name="mankiw3">{{Cite book|title=Macroeconomics|last=Mankiw|first=N. Gregory|author-link=Gregory Mankiw|year=2002|edition=5th|publisher=Worth Publishers|location=New York|isbn=0-7167-5237-9|page=[https://archive.org/details/macroeconomics00mank_0/page/489 489]|url=https://archive.org/details/macroeconomics00mank_0/page/489}}</ref> that these monetary reforms have made sudden disruptions in the banking system less frequent.

[[Walter Block]] argued fractional reserve banking inherently artificially lowers real [[interest rates]] and leads to business cycles propagated by excessive capital investment and subsequent contraction.<ref>{{cite book |last1=Block |first1=Walter E. |url=https://books.google.com/books?id=htOaEAAAQBAJ&dq=fractional+reserve+artificially+lowers+real+interest+rates&pg=PA95 |title=Action and Choice: An Introduction to Economics |last2=Jankovic |first2=Ivan |date=7 November 2022 |publisher=Springer Nature |isbn=978-981-19-3751-4 |pages=88 |language=en}}</ref><ref>[https://www.mises.org/Books/mysteryofbanking.pdf Murray Rothbard, ''The Mystery of Banking'']</ref> A small number of critics, such as [[Michael Rowbotham]], equate the practice to [[counterfeiting]], because banks are granted the legal right to issue new loans while charging interest on the money thus created. Rowbotham argues that this concentrates wealth in the banking sector with various pernicious effects.<ref name="Rowbotham 1998"/>