<p>It is my understanding that, while any entity can create dollar-denominated assets (stocks and bonds) and sell them on the open market, only banking institutions in the United States can engage in fractional reserve banking and thus truly increase the supply in US Dollar funds.</p>

<p>These funds are liabilities of the banking system as a whole to deposit holders and I am certain must be regulated in some way. What does an institution need to do to have this powerful ability to create new USD funds? Is it to be part of the Federal Reserve System? Is it to join the FDIC -- some state banks are outside the Federal Reserve System? Is it to be subject to other regulations and requirements to take deposits at all?</p>

CC BY-SA 3.0
2018-03-25T17:13:04.767Z
What makes you think that an institution outside the US couldn't engage in fractional reserve banking?  If a bank in Mogadishu tried to do this, what do imagine would happen?
Dan
CC BY-SA 3.0
2018-03-25T18:23:59.647Z
I'm speaking of fractional reserve banking in USD, but regardless, this does not answer the question. Perhaps you are hinting towards trust issues. If so, I am looking for how trust is formalized in practice, hence the question.
Nimrod
CC BY-SA 3.0
2018-03-25T18:45:09.457Z
Sorry, I should have been clearer: I specifically meant in USD, which is used as a parallel currency in a large number of countries, whose banking institutions often denominate accounts in USD.  It wasn't intended as an answer, but to clarify your question.
Dan
CC BY-SA 3.0
2018-03-25T18:55:21.933Z
That's a good point, thank you for the additional insight.
Nimrod
CC BY-SA 3.0
2018-03-25T21:24:25.387Z
It needs a banking license. In the United States, that’s done at the state level. So there’s 50 different answers...
Brian Romanchuk
CC BY-SA 4.0
2018-05-31T19:20:17.840Z
Perhaps picking a specific state given what @BrianRomanchuk commented would help in getting a more specific answer? I'm sure it may be too long of an answer even for that of one state but would help gain some insight to the answer you're looking for.
Ian G
<banking>
What qualifications does a bank need to create USD funds?
Nimrod
# What qualifications does a bank need to create USD funds?

(Asked by: username_0 on 2018-03-25)

It is my understanding that, while any entity can create dollar-denominated assets (stocks and bonds) and sell them on the open market, only banking institutions in the United States can engage in fractional reserve banking and thus truly increase the supply in US Dollar funds.

These funds are liabilities of the banking system as a whole to deposit holders and I am certain must be regulated in some way. What does an institution need to do to have this powerful ability to create new USD funds? Is it to be part of the Federal Reserve System? Is it to join the FDIC -- some state banks are outside the Federal Reserve System? Is it to be subject to other regulations and requirements to take deposits at all?

**Tags:** banking
> **Comments:**
> **username_1**: What makes you think that an institution outside the US couldn't engage in fractional reserve banking?  If a bank in Mogadishu tried to do this, what do imagine would happen?  
> **username_0**: I'm speaking of fractional reserve banking in USD, but regardless, this does not answer the question. Perhaps you are hinting towards trust issues. If so, I am looking for how trust is formalized in practice, hence the question.  
> **username_1**: Sorry, I should have been clearer: I specifically meant in USD, which is used as a parallel currency in a large number of countries, whose banking institutions often denominate accounts in USD.  It wasn't intended as an answer, but to clarify your question.  
> **username_0**: That's a good point, thank you for the additional insight.  
> **username_2**: It needs a banking license. In the United States, that’s done at the state level. So there’s 50 different answers...  
> **username_3**: Perhaps picking a specific state given what @BrianRomanchuk commented would help in getting a more specific answer? I'm sure it may be too long of an answer even for that of one state but would help gain some insight to the answer you're looking for.  

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## 0 answers

