So this banking model works as long as most depositors keep their money on deposit in the banking system.
Who would want to leave their money on deposit at UBS?
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The Fed has declared the ability to pay banks not to lend money by paying interest to banks for money on deposit at all Fed banks.
These accounts are tax-free within limits and allow the opportunity to invest in a wide range of assets as already described, or simply to keep the money on deposit.
In theory, if banks are required to hold more money on deposit with the central bank, this should increase the cost of their funds and so lead them to push up their interest rates.
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If you place your money with a peer-to-peer lender like Zopa, you are not lending to Zopa, in the way that you are lending to Barclays if you put your money on deposit with Barclays.
That said, there is an expectation that the European Central Bank will start to penalise banks for holding money on deposit with it, rather than using that cash to make loans, by charging negative interest rates for deposits.
Meanwhile, the seller of bonds to the Fed can then withdraw some or all of that money, or leave it on deposit with the Fed.
That was on the deposit rate, the rate put on money left by commercial banks at the central bank, which it normally earns interest on.
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The monetary base is potential money, potential high-powered money, but as long as its growth is primarily in reserves on deposit by the banking system at the Fed it is not yet money.
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The bulk of that money is now being raised by forcing losses on large deposit holders as well as bond holders in Laiki bank, which will be split into a bad bank of toxic assets and a remaining viable core business.
It measures the amount of gold on deposit at the Fed against the total money supply.
In order to trade on Intrade you had to deposit real live money with them.
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Another caveat: Money on prepaid cards isn't always insured by the Federal Deposit Insurance Corp.
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This new payment system also takes the cheapest money out of circulation because it encourages banks to leave more funds on deposit at the Fed rather until they identify a more profitable alternative.
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The most the ECB has done to try and encourage more lending is cut its overnight deposit rate, in other words paying less interest on money it borrows from banks overnight.
As for myself, Texas Christian University contracts with me to teach, research, and perform service activities on a regular basis, and in exchange they direct deposit money into my account every month.
And for Italian and Spanish banks, in today's febrile climate there is a strong temptation to put any spare cash on deposit with central banks, even for a guaranteed loss on that money, because they don't want to double up on lending to households and businesses struggling to repay what they owe, and they don't want to be short of cash if capital flight intensifies.
That means banks have to keep a larger portion of their cash on deposit instead of loaning it to clients, thus restricting the flow of money into the economy.
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