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Is that because banks are allowed to print money as they wish? I mean, what became of the business where entrepreneurs go to a bank and loan money to finance b

Is that because banks are allowed to print money as they wish? I mean, what became of the business where entrepreneurs go to a bank and loan money to finance building new ventures? For that the bank needs money, right? So I guess that they don't want money from customers anymore means they get it from elsewhere. Probably from the government in the form of permission to print money? Let me know if I am wrong here.

mempko 5y ago
Banks never lend other people's money. They create it. When you give your money to a bank, they add it to their reserves and your bank balance becomes a liability to them. They hold that liability because they need reserves for inter-bank transactions. When a Bank makes a loan to you, they don't take money from reserves. They simply create a balance in your bank account with them marking how much they owe you. They just create the money there. Reserves come into play when you want to transfer those funds to another bank. But if two people have a bank account with the same bank, then the bank doesn't need reserves to do that transfer. So no, banks don't lend other people's money. Not a single bank in the modern world lends other people's money. Bank lending in fact CREATES deposits. All the money you have in your bank account came from either A) Government spending B) Someone took out a loan. Either public spending or private debt. See: https://www.bankofengland.co.uk/quarterly-bulletin/2014/q1/money-in-the-modern-economy-an-introduction https://www.bankofengland.co.uk/quarterly-bulletin/2014/q1/m...
- ArtTimeInvestor 5y ago
  Inter-bank transactions need to be done with real money (the "reserves")? So a bank run could be done online? If enough customers of bank A send money to bank B, then bank A has to file for bancruptcy?
  - mempko 5y ago
    Yes, this is a risk banks need to manage. They typically do this by not having all the reserves tied to instant access accounts. So deposit accounts where the person cannot take everything out at once like savings and CDO.
- luckylion 5y ago
  > So no, banks don't lend other people's money. Not a single bank in the modern world lends other people's money. That's easy then. In case of a bank run, just give everyone their money back. They never loaned their customers' money, so they should have 100% of it ready to go.
  - ArtTimeInvestor 5y ago
    They might not have "loaned" their customers money but they don't have it anyhow. Because "their customers money" is just a number in their database. Imagine a new bank with no money and no customers. First customer walks in "Can I loan $100?". Bank: Sure. We make an account for you. Your account number is 1. Your balance is $100. Next day the customer walks in again. "I'd like to get my $100 in cash to go shopping". Bank: "Uh oh. Sorry, we have to file for bankruptcy."
  - wyager 5y ago
    People who took out loans can withdraw money from the bank as well.

mempko 5y ago

Banks never lend other people's money. They create it. When you give your money to a bank, they add it to their reserves and your bank balance becomes a liability to them. They hold that liability because they need reserves for inter-bank transactions. When a Bank makes a loan to you, they don't take money from reserves. They simply create a balance in your bank account with them marking how much they owe you. They just create the money there. Reserves come into play when you want to transfer those funds to another bank. But if two people have a bank account with the same bank, then the bank doesn't need reserves to do that transfer. So no, banks don't lend other people's money. Not a single bank in the modern world lends other people's money. Bank lending in fact CREATES deposits. All the money you have in your bank account came from either A) Government spending B) Someone took out a loan. Either public spending or private debt. See: https://www.bankofengland.co.uk/quarterly-bulletin/2014/q1/money-in-the-modern-economy-an-introduction https://www.bankofengland.co.uk/quarterly-bulletin/2014/q1/m...

ArtTimeInvestor 5y ago
Inter-bank transactions need to be done with real money (the "reserves")? So a bank run could be done online? If enough customers of bank A send money to bank B, then bank A has to file for bancruptcy?
- mempko 5y ago
  Yes, this is a risk banks need to manage. They typically do this by not having all the reserves tied to instant access accounts. So deposit accounts where the person cannot take everything out at once like savings and CDO.
luckylion 5y ago
> So no, banks don't lend other people's money. Not a single bank in the modern world lends other people's money. That's easy then. In case of a bank run, just give everyone their money back. They never loaned their customers' money, so they should have 100% of it ready to go.
- ArtTimeInvestor 5y ago
  They might not have "loaned" their customers money but they don't have it anyhow. Because "their customers money" is just a number in their database. Imagine a new bank with no money and no customers. First customer walks in "Can I loan $100?". Bank: Sure. We make an account for you. Your account number is 1. Your balance is $100. Next day the customer walks in again. "I'd like to get my $100 in cash to go shopping". Bank: "Uh oh. Sorry, we have to file for bankruptcy."
- wyager 5y ago
  People who took out loans can withdraw money from the bank as well.