Preview screenshot of a bank HQ

[Brain]

The reason I think it is necessary if we still consider CapLab more than a game but also educational, staying close to reality is necessary, abstracting a little away is okay but not diametral to reality. There are a few fundamental principles in banking that I would say are important, which is
a) how much can a bank offer to lenders (which is far more than customers having in their savings accounts, it is about 90 times that much in reality)
b) stay liquid and with not to many bad loans in the pocket - it is all about money flow
c) how banks attract the right kind of lenders in times of economic cooldown - In a Depression for example you have a positive feedback of not having enough consume because of lack of income, and not having enough credit because your clients do not consume enough.

In CapLab money was so far something that was always there and no further questions asked. Economic cycles are more emulated than simulated and that is fair enough, but if you want to teach kids about banking then they should get a good sense about what commercial banking means beside of just having savings on one end and loans on the other. Capitalism of today would not be thinkable without the banking we have. The reason we have constant inflation is based in it. The reason of perpetual state debts spiraling out of control is based in it. The pushing force in ever growing expansion and rising efficiency is based in it.

[chengtsai]

Well said Brain, I support a fractional banking system in this game meanwhile this is a good start.

[David]

Brain, what effect the fractional banking system will have on the gameplay?

[Brain]

The reserve ratio is an important tool of the monetary policy of an economy and plays an essential role in regulating the money supply. When the central bank wants to increase money supply in the economy, it lowers the reserve ratio. As a result, commercial banks have higher funds to disburse as loans, thereby increasing the money supply in an economy.
On the other hand, for controlling inflation, the CRR is generally increased, thereby decreasing the lending power of banks, which in turn reduces the money supply in an economy.

(https://economictimes.indiatimes.com/de ... erve-ratio)
In short it is one of the tools of the central bank to control inflation/deflation. It creates a ceiling on the banks ability to create loans.

Repo rate is the rate at which the central bank of a country lends money to commercial banks in the event of any shortfall of funds. Repo rate is used by monetary authorities to control inflation.
In the event of inflation, central banks increase repo rate as this acts as a disincentive for banks to borrow from the central bank. This ultimately reduces the money supply in the economy and thus helps in arresting inflation.
The central bank takes the contrary position in the event of a fall in inflationary pressures. Repo and reverse repo rates form a part of the liquidity adjustment facility.

The Repo rate does not influence how much loans banks can grant, but its value can make loans more or less expensive. Commercial bank loans have always an interest that is higher than the Repo rate - else the bank would make losses when refinancing at the central bank.

These two tools are the strongest tools the central bank has to fight inflation (as in too much money in the market, driving prices up by excess demand).
And tomorrow I tell you what central banks can effectively do against deflation. (Hint: not very much)

Back to the original question:
I expect a more realistic monetary market if central bank decisions might cause a credit shortage bringing players into trouble who are aggressively expansive when interest is low, also having to face a rejection at their bank when asking for a loan. Banks when played by players might learn the true meaning of becoming a "bad bank". We will see more corporation turnover if the corporations credit rating drops ... we will see market collapses. When your game can effectively replay the 2008 crunch you did it right

[David]

There are old posts discussing something similar on http://www.enlight.com/forum/viewtopic. ... 497#p11650

There is a graph there: http://www.enlight.com/forum/download/file.php?id=1544

Based on the graph, it seems to me that the liquidity will only multiply if the loans that banks lend out to corporations will end up going back to the bank or another bank's deposit account, as indicated by the 'deposits' arrow in the above graph.

Other arrows shown in the graph including Wages and Dividends are unlikely to increase dramatically driven by increased loans.

[David]

Attached please find a spreadsheet I created for testing financial figures under the fractional banking system.

You may change the reserve ratio percentage and observe the differences.

[brianwiz]

Very nice work

[Brain]

Very nice work

Indeed.

Based on the graph, it seems to me that the liquidity will only multiply if the loans that banks lend out to corporations will end up going back to the bank or another bank's deposit account

Exactly, and it actually HAS TO go to a banks deposit. When is the last time you think any company out there got their loan paid out in cash and they put it in their internal vault until they paid it to company B for their delivery, or any third party for their property where they rise a factory on, paid in cash to the builder companies? Apple is sitting on a lot of liquidity, but it is not sitting in their vault, it is spread out on accounts on banks.

Other arrows shown in the graph including Wages and Dividends are unlikely to increase dramatically driven by increased loans.

Loans and Wages indirectly go up in economic booms with a phase shift, and they often have to, as prices go up for their livelihood, low unemployment reduces job competition, companies are so much in the profit zone that their workers would become grumpy if they don't get a share. In the USofA it is a bit different, only the upper management gets rises, but since the 80s the only thing booming in the states is the share markets, derivate markets et cetera. The reason for that again is the positive feedback caused by unrestricted money creation due to banking deregulation under Clinton.

[David]

I will forward you suggestions and the associated details you provided on fractional banking to the dev team.

[beamthegreat]

Can you "deposit" your own money into your bank? Personal cash? Company cash?