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Nope. Pretend I’m a bank with no assets and no debt, and I give you a loan for $100. I then have $100 in assets and $100 in liabilities. When you withdraw the
by junofan 4y ago
Nope. Pretend I’m a bank with no assets and no debt, and I give you a loan for $100.
I then have $100 in assets and $100 in liabilities.
When you withdraw the $100 loan, I borrow from another bank or from the central bank, and give you that money.
I collect deposits because it’s a cheap source of liquidity.
- deleted 4y ago[deleted]
- kasey_junk 4y agoCritically, your asset is the loan, the liability is the deposit credit in the borrowers account but you have zero liquidity and are actually done for when they ask for the money. So you either need to borrow the money from another entity (if perhaps you were better at loan origination) ahead of that, or more likely use owner equity to payout the loan.
- neffy 4y agoWhich is where the capital that is required to create the bank comes in, since that provides the initial (cash) liquidity.