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That's not the case. A bank with an empty balance sheet can give a loan. It is simply Dr Loans, Cr Deposits. That's it. Nobody ever makes cash deposits into a
by neilwilson 8y ago
That's not the case.
A bank with an empty balance sheet can give a loan. It is simply Dr Loans, Cr Deposits. That's it.
Nobody ever makes cash deposits into a bank. The cash is just burned when the bank receives it (if it is worn enough).
A cash deposit to a bank is just a deposit transfer from the central bank. Cash is just a receipt for entries already at the central bank.
You are starting half way down the process.
To take your example
1) The balance sheet is $1mn Fed deposit asset, $1mn Credit to D.
2) The Balance sheet is $1mn Fed deposit asset + $1mn Loan Asset to B, $1mn Credit to B, $1mn Credit to D.
3) If the cash is withdrawn then the Fed deposit asset and the Credit to B is marked down. The cash will be new cash issued as a receipt for the deposit at the Fed.
You can do exactly the same without the deposit of D first. At that point the Fed asset would be negative and become the lender with the loan posted as collateral.
- kgwgk 8y ago> A bank with an empty balance sheet can give a loan. It is simply Dr Loans, Cr Deposits. That's it. A banks needs capital, an empty balance sheet doesn’t cut it. > Nobody ever makes cash deposits into a bank. Yes, they do. If you pay $5 for a capuccino or whatever what do you think they are going to do with your $5 bill at the end of the day? > The cash is just burned when the bank receives it (if it is worn enough). So they never receive cash because nobody ever deposits cash. And at the same time they do receive cash and they just burn it. You have convinced me, there is something seriously wrong with the banking system.