4 ms·

Should your capital increase over time without it being put to productive purpose?

logicchains 5y ago
Banks don't just sit on piles of cash, they lend it out. That's literally what banks do with the money people deposit in them, it's the whole point of banks!
- paulluuk 5y ago
  I'd argue that the main point of banks is that they protect your money from theft. Given that most people who use banks are poor and don't actually receive any significant interest.
  - selfhoster11 5y ago
    They don't receive significant interest because banks choose not to share any interest with the end customer. Easy access savings rates have been sub-1% for so long in the UK that customers have instead turned to exploiting introductory offers on current accounts.
- lucian1900 5y ago
  That’s not at all how banks work. BoE helpfully explain https://www.bankofengland.co.uk/knowledgebank/how-is-money-created https://www.bankofengland.co.uk/knowledgebank/how-is-money-c...
  - Armisael16 5y ago
    EDIT: This whole comment is pretty pointless in context. I didn’t read the the thread closely enough. It’s the sort of argument at cross-purposes that makes us all hate internet comments. I’ve left the text in place so readers can see what other people were responding to, but, y’know, I think it’s pretty dumb. This verges on pedantry in this context. Banks are required to have a certain amount of capital in reserve to make loans (the reserve requirements and capital adequacy ratios set by central banks). Deposits from consumers give the banks the reserve capital they need to make those loans. Without a way to use the deposits to make money the banks would just as soon not have your money.
    - imtringued 5y ago
      >(the reserve requirements and capital adequacy ratios set by central banks). Those are 0% or effectively zero in most developed nations.
      - deleted 5y ago
        [deleted]
    - csomar 5y ago
      > Banks are required to have a certain amount of capital in reserve to make loans Not if these loans are secured then they can make as much money as they want from thin air. > Deposits from consumers give the banks the reserve capital they need to make those loans. No. At least in the US, they just need to secure the loan with an asset that can be held from the dealers. Most of the time, if you got your mortgage from a bank, they'll just liquidate for real cash. > Without a way to use the deposits to make money the banks would just as soon not have your money. Which is why, in this new system, banks have become hostile to customers. Banks are no longer in the business of helping customers but trading money market funds.
- imtringued 5y ago
  You got it completely backwards. Banks grant credit (bank money) when debtors promise to work. Your money is effectively a share in the bonds that banks hold onto. In other words, the point of banks is not for people to store their money and earn interest, it's to provide liquidity and a trusted intermediary. When the bank pays interest it basically tells you to keep your money to make room for the investment spending. You and a company want to buy a car, you say the company should go first and you wait until the next car is produced. In theory you could do the same thing without the bank by writing an IOU saying you work x hours and then use that as money. The problem is that people have to trust you and the IOU is not fungible (it may be worth $4k when all you want to buy is $50 worth of groceries). https://youtu.be/xkQn56Dtslk https://youtu.be/xkQn56Dtslk
zo1 5y ago
Not OP, but I'd say, sure why not. Why does it have to be productive? It's arguably yet another paternalistic government intervention in the form of tweaking and twiddling with economic and regulatory knobs.
- Armisael16 5y ago
  This is exactly the opposite of paternalistic government intervention. If the money can’t be put to productive use then the bank can’t profit from holding your money and they’d just as soon not have it. If you insist on giving it to them anyways they charge you for the privilege.

Banks don't just sit on piles of cash, they lend it out. That's literally what banks do with the money people deposit in them, it's the whole point of banks!

paulluuk 5y ago
I'd argue that the main point of banks is that they protect your money from theft. Given that most people who use banks are poor and don't actually receive any significant interest.
- selfhoster11 5y ago
  They don't receive significant interest because banks choose not to share any interest with the end customer. Easy access savings rates have been sub-1% for so long in the UK that customers have instead turned to exploiting introductory offers on current accounts.
lucian1900 5y ago
That’s not at all how banks work. BoE helpfully explain https://www.bankofengland.co.uk/knowledgebank/how-is-money-created https://www.bankofengland.co.uk/knowledgebank/how-is-money-c...
- Armisael16 5y ago
  EDIT: This whole comment is pretty pointless in context. I didn’t read the the thread closely enough. It’s the sort of argument at cross-purposes that makes us all hate internet comments. I’ve left the text in place so readers can see what other people were responding to, but, y’know, I think it’s pretty dumb. This verges on pedantry in this context. Banks are required to have a certain amount of capital in reserve to make loans (the reserve requirements and capital adequacy ratios set by central banks). Deposits from consumers give the banks the reserve capital they need to make those loans. Without a way to use the deposits to make money the banks would just as soon not have your money.
  - imtringued 5y ago
    >(the reserve requirements and capital adequacy ratios set by central banks). Those are 0% or effectively zero in most developed nations.
    - deleted 5y ago
      [deleted]
  - csomar 5y ago
    > Banks are required to have a certain amount of capital in reserve to make loans Not if these loans are secured then they can make as much money as they want from thin air. > Deposits from consumers give the banks the reserve capital they need to make those loans. No. At least in the US, they just need to secure the loan with an asset that can be held from the dealers. Most of the time, if you got your mortgage from a bank, they'll just liquidate for real cash. > Without a way to use the deposits to make money the banks would just as soon not have your money. Which is why, in this new system, banks have become hostile to customers. Banks are no longer in the business of helping customers but trading money market funds.
imtringued 5y ago
You got it completely backwards. Banks grant credit (bank money) when debtors promise to work. Your money is effectively a share in the bonds that banks hold onto. In other words, the point of banks is not for people to store their money and earn interest, it's to provide liquidity and a trusted intermediary. When the bank pays interest it basically tells you to keep your money to make room for the investment spending. You and a company want to buy a car, you say the company should go first and you wait until the next car is produced. In theory you could do the same thing without the bank by writing an IOU saying you work x hours and then use that as money. The problem is that people have to trust you and the IOU is not fungible (it may be worth $4k when all you want to buy is $50 worth of groceries). https://youtu.be/xkQn56Dtslk https://youtu.be/xkQn56Dtslk

zo1 5y ago

Not OP, but I'd say, sure why not. Why does it have to be productive? It's arguably yet another paternalistic government intervention in the form of tweaking and twiddling with economic and regulatory knobs.

Armisael16 5y ago
This is exactly the opposite of paternalistic government intervention. If the money can’t be put to productive use then the bank can’t profit from holding your money and they’d just as soon not have it. If you insist on giving it to them anyways they charge you for the privilege.