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The point of this article is: a bank deposit is an asset for you, the depositor, and therefore a liability for the bank. A mortgage is a liability for you, and
by dmurray 6y ago
The point of this article is: a bank deposit is an asset for you, the depositor, and therefore a liability for the bank. A mortgage is a liability for you, and therefore an asset to the bank.
Sometimes we get confused and we think that the bank deposits must be assets for the bank, and mortgages must be liabilities. This isn't because of some linguistic quirk. It's because its good for the bank to have a lot of deposits, because it means it's doing a lot of business. In the same way a company with a billion-dollar line of credit is likely doing better than a firm who can't borrow a cent.
- User23 6y agoAlso, when the bank originates a loan it also creates a corresponding deposit. Therefore a bank having more deposits indirectly indicates it’s originating more loans.
- dmurray 6y agoIt's the other way round. The first part isn't true - the bank doesn't buttonhole some saver into giving them a few hundred grand when you take out a mortgage. (It might get the deed to your house, physically or metaphorically - but there are also unsecured loans). The second part is true: when you make a deposit the bank has some more cash and will surely invest it/loan it out/deposit it at another institution. Those three phrases all mean roughly the same thing: the bank will take the pile of copper and linen you gave it and use it to purchase another asset.
- User23 6y agoI wrote nothing about savers. Both the loan (bank asset/customer liability) and the deposit (bank liability/customer asset) are created from nothing at the same time when the bank originates a loan. The loanable funds model, which it appears you are alluding to, is observably an operationally incorrect fantasy.