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How Fast Can Bank Reserves Fluctuate?

In Money Supply on April 30, 2011 by CQCA

How fast can bank reserves fluctuate? The chart above shows the ratio of Canadian bank assets to deposits at the central bank. The ratio’s highpoint was in April, 2006 at $40,516.5 of bank assets to $1 of deposits at the central bank. The lowpoint was in May, 2010 at $676.8 of bank assets to $1 of deposits at the central bank. This all occurred within five years. That general low point lasted from May, 2009 to May, 2010. By November, 2010, the ratio had returned to $23,300.4. This fluctuation is due to changes in bank reserves, not assets.

The chart above shows the total Canadian Dollar amount of assets held by Canadian depository institutions. This amount has been steadily increasing, which means the changes in the ratio are a result of changing bank reserves, shown below.

This means that the $1.4 trillion sitting in the reserves of U.S. banks could make its way into the money supply faster than we think.

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