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This conveys a misunderstanding of money creation. The bank specifically does not need your cash to make loans; that is in fact what makes it a bank. However, p
by the_optimist 5y ago
This conveys a misunderstanding of money creation. The bank specifically does not need your cash to make loans; that is in fact what makes it a bank. However, putting your cash inside your mattress withholds your funds from the investment manager, who would or could invest it in risk assets.
- Jyaif 5y ago> The bank specifically does not need your cash to make loans They do: the more money a bank has, the more they can loan.
- xtracto 5y agoThey need the money to lend. Otherwise they couldn't give you money. Tge holy grail of any lender is being able to get money from consumers. So they can lend that same money (I e. You dont have to get a credit line to get money you'll lend) That's the reason countries have made regulations that I sure money you deposit in your bank (FDIC in the USA?) : if banks screw up with crazy debt, your money is still safe. In Mexico one way it works is that banks must keep x% of the lent money available.
- the_optimist 5y agoResponding to all of the responses here: this is not correct. Banks explicitly do not 'need money' to lend. They need equity to maintain their capital adequacy ratio to be able to lend. Banks literally beget money and are governed only by regulation. Non-bank institutions cannot do so. Deposits are merely a less-expensive-than-'fed-funds' liability. Here to understand this popular misconception: https://news.ycombinator.com/item?id=28473807 https://news.ycombinator.com/item?id=28473807
- missedthecue 5y agoA bank can't make loans with assets AKA deposits.