Yes. But typically banks can leverage - for example, the bank which employs me typically lends out around $125-$135 for every $100 dollars in deposits. I guess the OP was trying to explain the money multiplier but got the example wrong.
(Money multiplier is the inverse of the reserve requirement)
No. Deposits are what are used to "lever" up in the first place. If a bank lends out $125 for every $100 that it gets in deposits, where is the other $25 coming from? The answer is that it comes from equity.
Banks have two sets of inputs:
(1) Equity (i.e. the owners of the bank put up capital. This is great because it requires them to have 'skin in the game')
(2) Incoming debt (i.e. depositors give them money.).
They have two outputs:
(3) Outgoing debt (i.e. the loans the bank makes out to people, in the form of mortgages, small business loans, lines of credit, etc.)
(4) Reserves (money they have to keep on hand)
Notice that as an accounting identity, we must have that (1) + (2) = (3) + (4).
Leverage limits essentially limit the ratio (2):(1). For example, a leverage limit of 9:1 means that a bank lends out $100 has to source at least $10 of that from equity, and at most $90 of that from incoming debt.
Fractional reserve limits essentially limit the ratio (3):(4). As "user downandout shows in a sister thread to this one, this can be used to determine a "multiplier" for the economy as a whole, since for a nonzero limit, there is a closed form fixed point solution maximum multiplier ratio in the economy as a whole. (Although in practice the "true" multiplier can be lower since people might stuff their mattresses with money, or have lots of loose change lying around, etc.).
Note that the fractional reserve limits are something that is enforced on banks by the government to limit the multiplier. This restriction doesn't exist on P2P lenders (as of yet), and so if any thing, it means that P2P lenders are even freer to do bad things (such as have no reserves on hand at all).
> Deposits are what are used to "lever" up in the first place. If a bank lends out $125 for every $100 that it gets in deposits, where is the other $25 coming from? The answer is that it comes from equity.
That's not entirely correct. Those $25 mostly comes from other banks with other business models, e.g. banks holding treasury bonds instead of loans.
That said, I really like how radmuzoom's comment contained the kernel of real-life data that should help people realize that the typical money multiplier explanation is just wrong: if you actually look at the sum of deposits and the sum of loans that banks have, you'll see that they are more or less equal.
Yet, if you believed the typical money multiplier story, the amount of loans would have to be at least 10x higher than the amount of deposits (even infinitely larger in countries where no reserve requirement exists!).
surely p2peer is just that. If I have $100 and you want to borrow $100 I lend to you. I get a rate of return on this and the p2peer company take a cut on that rate for being the middle-man. They don't act as guarantor, if you fail to repay the $100 I loose out (and they loose their cut of the interest).
When you "lend on" money you yourself borrowed in peer2peer lending at this point you cede access to that money. Unlike when you save with a bank where your money is lent out (except the 10% reserve) yet you have a demand deposit for the full amount. Hence the multiplier effect.
I think your description above is totally wrong. Banks in the UK had leverage at over 20 times assets to capital. It was precisely this high level of gearing which meant that our banks collapsed very quickly when there was a shift in the economy.
Banks lend most of the money out back out based on the probability that most loans won't default. Your 1+2 isn't correct.
(Money multiplier is the inverse of the reserve requirement)