Those increased deposits at commercial banks were, by definition, an increase in the relevant stock of money.

At the same time, finance takes on quasi fiscal functions by excluding government fiscal deposits government deposits in the national treasury, commercial banks fiscal savings, and central treasury cash managed through commercial bank deposits from the money supply.

But now commercial banks are willing to hold their excess reserves at the Fed, because the Fed now pays interest on those deposits.

The Chinese authorities do it today, and they also set the minimum deposits banks must maintain with the central bank.

Finally, central banks still stand ready to intervene to prevent bank runs.

Because runs on banks can trigger widespread distress, governments explicitly guarantee insured deposits and implicitly guarantee all the other debts of mega banks.

Otherwise, bank runs and debt panics will be rampant.

Some banks may even prefer these flows to direct deposits.

Flooding banks with central bank money is no guarantee that deposits, which arise from spending or borrowing money, will increase in the same proportion.

That means reaffirming the commitment to deposit insurance, closing unviable banks, and recapitalizing the rest with European (not Cypriot) funds.

Banks would then find it advantageous to hold their surplus liquidity in the form of T bills as long as these bills yielded more than bank deposits held at the ECB.

And a lot of licit banks were also happy to accept deposits from very dubious sources without questions being asked.

The American Bankers Association, worried about the fees that banks would be obliged to pay, vehemently opposed deposit insurance.

By quantity of money, experts normally mean M3, a broad measure that includes bank deposits. Flooding banks with central bank money is no guarantee that deposits, which arise from spending or borrowing money, will increase in the same proportion.

On the international relations front, after 2010, as deposits from Europe left Cypriot banks, deposits from Russian businesses and individuals increased and Russia has many reasons to use money as a way of buying political control.

Governments brought commercial banks under prudential regulation in exchange for public provision of deposit insurance and lender of last resort functions.

Because government provides deposit insurance, it plays a large role in restructuring (unlike other sectors). Normally, when a bank fails, the government engineers a financial restructuring if it has to put in money, it, of course, gains a stake in the future.

The Senate Agriculture Committee proposes blocking deposit taking banks from making markets in swaps.

The interest rate on these totally safe and liquid deposits induced the banks to maintain excess reserves at the Fed instead of lending and creating deposits to absorb the increased reserves, as they would have done before 2008.

These countries households continue to save, accumulating deposits at their local banks and buying bonds from their local wealth managers.

After all, deposits from the small town banks were running off to big banks in money centers like New York, Chicago, and Los Angeles.

Since reserves in excess of the required amount did not earn any interest from the Fed before 2008, commercial banks had an incentive to lend to households and businesses until the resulting growth of deposits used up all of those excess reserves.

Low interest rates on deposits encourage savers, especially households, to invest in fixed assets, rather than keep their money in banks.

Absolutely not. The provision of liquidity, the recapitalization of banks, more uniform deposit insurance across the advanced countries these were all correct and necessary measures.

The irony is that Congress took up the big banks offer to separate commercial and investment banking, but then enacted deposit insurance anyway.

Banks grew out of a practice by gold smiths and silver smiths, who, for a small price, accepted deposits for safekeeping.

If such banks fail, they are resolved by the Federal Deposit Insurance Corporation (FDIC) in the normal fashion, and this has always been the market s ex ante expectation.

Slow money growth and dollarization of deposits have hampered the ability of commercial banks to finance the government, leaving more of the burden to the central bank.

It needs to provide an expanded form of deposit insurance during this time of turmoil, so that there are no more Northern Rock style bank runs.

Similarly, banks have short term liabilities (deposits) and long term assets, which they cannot liquidate quickly without incurring great losses.

Coercive restructuring of insolvent banks unsecured debt would be next.

Moreover, they must maintain an extensive and thus expensive domestic retail network to collect the savings deposits from which they are not profiting.

Bank runs started almost immediately and quickly engulfed the country, resulting in the Bank Holiday of 1933 that is, in the forced closure of the entire US banking system.

This is particularly true of the repo markets, which provide the equivalent services for professional investors banks and large corporations that ordinary bank deposits provide for individuals and small firms.

Instead, the reform proposals have opted for a mixture of higher capital requirements for leading banks and pre funding of deposit insurance by a special levy on banks.

As a consequence, chaos looms in Greece, as does the prospect of subsequent bank runs in Spain, Italy, and France and thus a financial avalanche that would bury Europe. And then?

Consider a bank with liabilities of 1 billion.

In the last month alone, Australia, India, Mexico, and others have cut interest rates. China has reduced reserve requirements on banks.

So, if the PBOC sets the interest rate on one year deposits at 3 , commercial banks can offer depositors a rate as high as 3.3 .

Banks capital adequacy ratios were set globally, and, once set, remained fixed.

In the early to mid 1990 s, rates were kept low because of banks real estate problems.

When banks make loans, they create deposits for borrowers, who draw on these funds to make purchases. That generally transfers the deposits from the lending bank to another bank.

With the gradual dismantling of Glass Steagall, and its final repeal in 1999, bankers triumphed over both the busters and the regulators, while maintaining deposit insurance for the commercial banks.

As a result, the People s Bank of China has raised interest rates substantially and increased banks reserve requirements.

This episode serves as a reminder that central banks are political institutions, with a political agenda, and that independent central banks tend to be captured (at least cognitively ) by the banks that they are supposed to regulate.