[nukemandan]

Is the zero reserve ratio requirement what you are referring to here? Thus allowing banks working directly with the Fed to have zero "real" dollars in existence for customer deposits?

I believe this is not true for all banks, but surely is shocking that this measure is in place, as it is unclear what holds those primary banks from lending to any extent they wish. I must be missing something.

[than3]

Yeah, that's what I'm talking about.

Here is the url for reference if anyone wants to look at it https://www.federalreserve.gov/monetarypolicy/reservereq.htm

It doesn't look to me like there is anything holding them back from loaning as much money as they want regardless of the risk now.

[credit_guy]

There is something holding them back.

Check this out

https://www.federalreserve.gov/newsevents/pressreleases/bcre...

  The Board's stress tests help ensure that large banks can support the economy during economic downturns. The tests evaluate the resilience of large banks by estimating their capital levels, losses, revenue and expenses under hypothetical scenarios over nine future quarters.

Banks that lend with abandon would fail this test. This automatically means they can”t distribute dividends or do share buy-backs. Which in turn makes shareholders unhappy. They either vote the CEO out, or sell their shares to buy shares of banks that give dividends. That”s called “voting with your feet”. Results in stock tanking, then CEO out.