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If they are sitting on excess cash, they can lower interest rates on deposits. The point is that when banks receive deposits, in the short term, their assets/l
by tylerhou 4y ago
If they are sitting on excess cash, they can lower interest rates on deposits.
The point is that when banks receive deposits, in the short term, their assets/liabilities doesn’t change.
- lxgr 4y agoSure, but you don't get a useful model of a bank by only looking at the short term like this. > The point is that when banks receive deposits, in the short term, their assets/liabilities doesn’t change. They do change: Cash is a (risk-free, modulo safe storage) asset, the deposit is a liability. This has consequences for all kinds of metrics vital to the running of a bank.
- incompatible 4y agoCorrect, although if they don't do something to make money with the cash they take in as deposits, they won't have sufficient income to cover their expenses, let alone make a profit.