The U.S. Federal Reserve is responsible for the monetary policy behind the issue cheap money, or quantitative easing. Changes in the quantity of currency originating the actions taken by the Fed or central bank, as well as large depository institutions and consumer lending influence the amount of money in circulation.
The fractional reserve system was designed to meet bank account withdrawals. The Fed mandates a lower limit on bank reserves in the form of currency or deposits. Central bank reserves are released to depository institutions based on the underlying value of deposits. Money supply is estimated according to underlying currency reserves issued by the central bank.
When an institution experiences shortage due to a large percentage of withdrawal on the same day of deposit, cash flow risk may be the result. To prevent a bank run, the Fed has instituted oversight under the FDIC to insure that the fractional reserve system functions without destabilization to the monetary authority or the commercial banks and credit unions it serves. The bank tier classification of depository institutions designates capital adequacy ratios and reserve requirement limits controlling for solvency and capitation rates on money creation.
Moving Forward—Modern Money Mechanics (2010) looks at how the failure of banks is correspondent with failure of payment on loans. The creation of money is primarily the result of banking institution demand in response to checkable liabilities. Fluctuations in bank customer accounts affect liabilities to the institutions, when those deposit accounts coincide with consumer credit. Hence, borrowers trigger institutional requirements for conversion of check deposits and loan accounts.