The Hawaiian fractional reserve

Hat tip to Ku for forwarding this article that explains the "fractional reserve" system that Bumpy refers to when he talked about the "capital leverage formula" that is the basis for the leverage power of a Hawaiian bank.

[F]or the sake of argument, let's say that ... $10 billion gets deposited with Chase Manhattan Bank.

Chase, as you would guess, would be overjoyed by their good fortune, but not for the reasons that you might think.

You see, not only do they get the benefit of the original $10 billion dollars but, because of fractional reserve lending, they can now lend out nine times that amount-or $90 billion dollars.

In other words, fractional reserve lending allows commercial banks to create nine times more money than they have on deposit or in reserve. And in doing so they create money out of nothing...

Search under "fractional reserve" system or banking or lending, or "cash reserve ratio" and you'll find lots of articles on the topic. It can be confusing (it is to me sometimes), but that's the basic idea, and it really does work that way.

This article, and many others, are coming from the perspective of how much of a rigged system it all is, which is an interesting discussion, but I'm just trying to help folks understand how the system actually works, and what Bumpy is talking about.

There is nothing to say that people can't start their own banks to use this mechanism to channel the benefit back to their own communities, rather than to the big banking corporations. There is no reason why Hawaiians can't own their own bank, and why OHA and other Hawaiian institutions can't put their cash on deposit there. So the Hawaiians as shareholders get the interest dividends, and the leverage capacity to provide needed services to the Hawaiian community that aren't predatory.

Bumpy talks about Native Hawaiians owning at least 51% of the shares. But all descendants of Hawaiian nationals, or even all residents of Hawaii, could also have shares. It can be a Hawaiian bank in both/all senses.

Now believe me, Hawaii's banks do not want to lose OHA's and other institution's deposits. I am not certain of the current numbers, but I believe most of OHA's funds (liquid assets, not their investment portfolio) are deposited with First Hawaiian Bank, which is of course owned by a French banking corporation. So there's really nothing Hawaiian first about it.

To give you guys some context on my involvement with Bumpy on this issue, it is something we have been talking about and working on for over ten years. It was about ten years ago that he and I went to a lunch with Corbett Kalama, a Native Hawaiian who was at that time (maybe still is) with First Hawaiian Bank. We were in the process of challenging their planned acquisition of another bank, based on discriminatory lending practices. We told him at that time we wanted their support to help start a Hawaiian bank. His words were all supportive, but of course they didn't really want it to happen. There are powerful entrenched forces in Hawaii that don't want this to happen. It is something that will surely meet resistance.

But it can be done. And OHA has the asset base, the legal basis (in the occupiers own laws), and the institutional capacity to do it. If they just have the political will. (The real question is, why haven't they done it already?)

Also, over the years that Bumpy has been working on this idea, educating people about it, planting huli, he has met numerous very knowledgeable people who are highly qualified experts in this area, who want to help. It can be done. If OHA has the political will.

Let's work hard between now and Nov. 7 to elect Bumpy to OHA so he can really start this process in motion, and then help him make it happen.

Posted: Thu - October 19, 2006 at 11:51 PM

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The Hawaiian fractional reserve

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