tang20I believe the description of banking put forth in Mystery of Banking and indeed most economics literature, that which leads to the existence of a “money multiplier” based on reserve ratio, is severely outdated.
One should look into the topic of “Endogeneous Money” to get a more accurate picture of the banking system. (http://en.wikipedia.org/wiki/Endogenous_money). Also “Understanding The Modern Monetary System” at http://pragcap.com/understanding-modern-monetary-system.
In short, banks are never constrained by reserves. Banks are always capital constrained. Banks do not need reserves to make loans. Indeed, banks periodically seek reserves *after* the loans are made. So, it is irrelevant if you deposit $100 in the bank. If the bank finds a worthy borrower in demand of a loan then the bank will make the loan, and then seek the reserves afterward, purely for liquidity and regulatory reasons.
The ONLY constraints are capital constraints, and on that topic I post here an excerpt from a discussion I had with someone with experience in the banking industry:
“So, the TLDR; is that banks are technically constrained by their base “Capital” — that is they are only allowed to make a grand total amount of loans that is LESS than what the expected risk of default will be — so if a bank estimates that the “risk” of it’s portfolio or loans defaulting — going totally bad and left unpaid — is say 10%, then with base capital of say $100 million, that bank will not lend more than $1 billion in total (and indeed will stay far SHY of that total). “