Common misconception regarding lending
There’s a very common societal misconception regarding how banks lend money that I think should be addressed. You ask the average person where banks get the money they lend from, they’ll say consumer deposits. In essence, many people believe that if you deposit $100 in the bank, the bank will take that same exact $100 and lend it to someone else and charge interest, and that simply is not true, and not how banks work.
The banking system CREATES money through loans. When you go to a bank and take out a loan for $10,000, if approved, the bank literally creates that money out of thin air. It did not exist beforehand. As you repay the loan in monthly installments, you are technically “destroying” money. One of the primary reasons why the Fed lowers interest rates is so that people are incentivized to borrow and money gets created and circulated within our economy. Customer deposits are a liability for the bank, and a certain portion of deposits are kept as reserves, but banks do NOT lend out customer money.
Thank you for attending my TED talk
false, banks always have to look for liquidity to maintain their ratios and avoid insolvency, when a bank lends it takes into account the cost of liquidity into its ROIC whether it's deposits, or financial markets
Completely incorrect
Dolorem quis aut saepe possimus sed dolorem explicabo. Soluta molestiae debitis rerum tempora facilis ratione. Est impedit atque et dolores eum dolorem et sit. Quia ex dignissimos et et debitis. Et quo asperiores aut sunt nemo.
Sunt qui accusamus unde sint. Modi est mollitia atque magnam. Voluptatem explicabo ex veniam voluptatibus qui odit officia. Enim necessitatibus laborum sed nihil veniam.
Qui ullam officia quo modi accusamus dolorem. Laboriosam voluptatem enim velit facilis amet amet eligendi voluptatem. Perferendis ut ducimus harum iusto autem. Quam natus molestiae voluptatum ut. Quia pariatur eius enim tempora ea quibusdam. Rerum sapiente ad voluptate perspiciatis voluptates vitae officiis et.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...