Banks: Regulatory lending limit | General financial discussion | Discussion forum

savemoresaveoften said

Doug, I was only extending someone else's doomsday scenario where $5b was mentioned.

You mentioned they only have $5b in mortgage but a deposit base of $30B ? Given its 20x multiplier, they can lend out upto $600b. Wheres is the 600-5 loan goes ?

The limits are not based on amount of deposits. The multiple limits are based on the bank's capital.

You're probably thinking of the leverage ratio that can be as low of 3%.

If a bank were authorized for 3%, then the bank is authorized to accept deposits and other funding, up to 1/3% = 1/0.03 = 33.33 times its capital.

How much of those deposits it can lend out depends on what kind of loans they make. One of the capital adequacy ratios, based on risk-weighted assets (such as loans), could cap what they can lend below 100% of the deposits.

Bank can only lend more than 100% of the deposits if they have other money elsewhere to loan out, like excess capital that it doesn't need to meet the leverage ratio, capital adequacy ratios, and any other required ratios.