A bank multiplier is a mechanism for the growth of the total money supply, which is deposited in each commercial bank as a result of the movement of funds from one account to another.
The bank multiplier works not onlywhen a commercial bank provides a loan, but also when the Central Bank purchases currency, shares or other securities from commercial banks. As a result, there is a decrease in the resources of banks invested in active operations, and the growth of free reserves, which are then used for lending, that is, the banking multiplier begins to work. Consider this concept in more detail.
The essence and mechanism of the bank multiplierit is most convenient to identify with a specific example. Suppose that a certain corporation serviced by Bank A sold the proceeds from exports through the direct participation of the bank on the MICEX in the amount of 10,000 rubles, which was subsequently transferred to the correspondent account of the Central Bank of the Russian Federation. Bank A transferred funds to the current account of the corporation (demand deposit). According to the norms established by the Central Bank, some of this money must be credited to a special account in the form of a mandatory minimum reserve. Assume that the mandatory rate is 4%. Then the amount of the reserve will be 400 rubles.
Thus, the commercial bank receives in itsorder the amount of 9,600 rubles., which can be used to make a profit. These funds are sometimes called excess reserves of a commercial bank. Nothing prevents the institution from directing them to lending to another firm that uses its services. So, our bank gives a loan to another company for the amount of 9 600 rubles. As a result of this operation, the excess reserve is reduced to zero value together with the simultaneous crediting of the disbursed amount to the deposit in the same bank. Then, with the help of a loan, the company paid for the raw materials and transferred the amount to the supplier's account at Bank B. As a result, he receives at his disposal funds in the amount of 9,600 rubles, 4% of which (384 rubles) goes into the reserve, and the remaining 9,216 rubles. Bank B can also send loans to some other firm. Thus, there is an increase in money, and new amounts are added to already existing loans and deposits.
Consider now how you can calculate the bank multiplier. The formula has the following form:
Cm. = M2k. : (М2кг.-М0.г.), where
Cm. - coefficient of bank animation;
M2Kg. - the size of the money supply at the end of the accounting year;
M2n. - the size of the money supply at the beginning of the accounting year;
M0.n. - the entire amount of cash at the beginning of the accounting year.
The bank multiplier works only in thatThe case where the banking system has two levels. The first is the central bank of the country, which controls this mechanism. And at the second level are the commercial banks themselves, which launch it regardless of their desire. At the same time, the effect of increasing money is not achieved by one single institution, but by the entire banking system. Obviously, banking animation directly depends on the amount of mandatory reserves. The lower the norm, the more commercial banks have free reserves, which they use to increase the money supply.
Банковский мультипликатор может работать и в the opposite side. If customers start withdrawing money from deposits in bulk, the total amount of all loans will decrease and there will be a credit squeeze of the money supply.
It should be noted that among all active operationsin the banking sector only credit investments are able to create new deposits, thus fulfilling the issuing function of the national banking system. The more loans are issued, the greater the amount of issuing activity.
