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The odds of a commercial bank going bust is higher then Germany going bust. Commercial banks only need to keep a few % of the money deposited at them on their b
by lurker456 9y ago
The odds of a commercial bank going bust is higher then Germany going bust. Commercial banks only need to keep a few % of the money deposited at them on their books (its called fractional reserve banking), the other 95% or so can be invested or lent out elsewhere. There are regulations that restrict the risk, require hedging, insurance, etc but those don't help much if the insurer or a significant amount of the borrowers go bust as well due to systemic problems.
- SilasX 9y agoBanks are allowed to loan out the money, but they don't have to, and could take business from the negative-yielding government bonds by just leaving the money alone, in their electronic reserve account.
- umanwizard 9y agoThen where is the bank supposed to keep their money? In another commercial bank? In cash? This creates an infinite regression problem... They could keep it in the Fed, but the Fed charges money for the privilege (and I assume so does the ECB and other equivalents)
- SilasX 9y agoBanks hold unloaned reserves already.
- umanwizard 9y agoHold them where? In cash?
- KekDemaga 9y agoI imagine I could hold cash safely for a fee less than 0.75%