Mortgage, Money and Dream – Our thoughts on Canadian Mortgage Market
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Today Banking industry is based upon in fractional reserve banking. That means that banks can lend money more than they have in their reserve. So the reserve ratio is typically 10% to 15%. This fact alone make all (most of them – technically speaking) banks vulnerable to insolvency. Say if all the creditors, deposit holders, investors etc. goes to RBC all together – today at the same time – to withdraw all their money – Canada’s largest bank will become insolvent ( again hypothetically speaking). The insolvent bank then has to go to someone who can lend it money in those dire time. That, in Canada would be Bank of Canada, that is why most of the central banks are called Lender of Last Resort. Long time ago HSBC and JPMorgan Chase were considered as Lender of Last Resort. They did not have to print money then…