The more public debt a currency-issuing government voluntarily issues the more difficult it is for banks to attract deposits to initiate loans from.
Answer: False
The answer is False.
Banks do not need deposits and reserves before they make loans. Mainstream macroeconomics wrongly asserts that banks only lend if they have prior reserves. The illusion is that a bank is an institution that accepts deposits to build up reserves and then on-lends them at a margin to make money. The conceptualisation suggests that if it doesn't have adequate reserves then it cannot lend. So the presupposition is that by adding to bank reserves, quantitative easing will help lending.
But this is not how banks operate. Bank lending is not "reserve constrained". Banks lend to any credit worthy customer they can find and then worry about their reserve positions afterwards. If they are short of reserves (their reserve accounts have to be in positive balance each day and in some countries central banks require certain ratios to be maintained) then they borrow from each other in the interbank market or, ultimately, they will borrow from the central bank through the so-called discount window. They are reluctant to use the latter facility because it carries a penalty (higher interest cost).
The point is that building bank reserves will not increase the bank's capacity to lend. Loans create deposits which generate reserves. As a result, investors can always borrow if they are credit-worthy.
So the statement - "the more difficult it is for banks to attract deposits to initiate loans from" reflects an erroneous view of the banking system.
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