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What happens if the bank lends 10 million as per the previous example, holding only 1 million, then the bank goes bust. Does that 9 million seemingly magic mone
by PudgePacket 11y ago
What happens if the bank lends 10 million as per the previous example, holding only 1 million, then the bank goes bust. Does that 9 million seemingly magic money stay with the borrower? I don't understand how it balances back again.
- deleted 11y ago[deleted]
- carsongross 11y agoI don't totally understand your question: the bank is typically slowly paid back on the loan and the loan is collateralized, so the nine million dollars don't puff out of existence at a single point any more dramatically than it currently would. The bank would have time to deal with the inevitable defaults due to the duration matching of deposits and loans. Obviously banks could still go bankrupt, but they would not be bankrupt by design, like they currently are.