Why do we need private banks at all? | 133 comments (133 topical, editorial, 0 hidden)

Re: Why do we need private banks at all? (none / 0)

They lend it.

0% current account deposit of 100 zlotys
5% mortgage for 100 zlotys

Profit!

by rootless2 on Wed Feb 29th, 2012 at 11:12:05 AM EST
[ Parent ]

Re: Why do we need private banks at all? (none / 1)

The revenue is from the loan, not from the deposit.

And as we've pointed out repeatedly loans don't require deposit. They create deposits.

If I have 100 of your zloty and I lend 100 zloty to Jake, I credit 100 zloty to Jake's account so now you still have your 100 zloty deposit and Jake has a spanking new 100 zloty deposit. So my loan to Jake doubles my deposits from 100 to 200. I am not loaning to Jake from your 100. Your 100 are still available to you, as are Jake's 100.

There are three stories about the euro crisis: the Republican story, the German story, and the truth. -- Paul Krugman

by Carrie (migeru at eurotrib dot com) on Wed Feb 29th, 2012 at 11:15:50 AM EST
[ Parent ]

Re: Why do we need private banks at all? (none / 0)

In order to lend the money to Jake I must meet a reserve cash requirement. Where does that cash come from?

by rootless2 on Wed Feb 29th, 2012 at 11:51:43 AM EST
[ Parent ]

Re: Why do we need private banks at all? (none / 1)

You can borrow it from another bank. Or you can pledge the loan to Jake as collateral at the central bank in exchange for cash with which to satisfy the reserve requirements. Or you can take deposits.

But you only have to satisfy the reserve requirement after Jake already has his loan. In extremis you will borrow the reserves from the central bank at a penalty rate.

There are three stories about the euro crisis: the Republican story, the German story, and the truth. -- Paul Krugman

by Carrie (migeru at eurotrib dot com) on Wed Feb 29th, 2012 at 11:58:39 AM EST
[ Parent ]

Re: Why do we need private banks at all? (none / 1)

No, you have up to a month to find those regulatory reserves, because regulatory compliance only requires that your average position over the month in question is in excess of the requirement.

But that's actually incidental, because you make the loan to me, and turn around and rediscount the note with the CB on the very same day.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed Feb 29th, 2012 at 12:02:19 PM EST
[ Parent ]

Why do we need private banks at all? | 133 comments (133 topical, 0 editorial, 0 hidden)

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