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But there's this endless array of explainers saying they don't- https://www.google.com/search?q=banks%20don%27t%20lend%20deposits%20 https://www.google.com/sear

But there's this endless array of explainers saying they don't- https://www.google.com/search?q=banks%20don%27t%20lend%20deposits%20 https://www.google.com/search?q=banks%20don%27t%20lend%20dep...

borski 4y ago
Ugh. Okay, banks don’t take the money that you deposit, turn around and loan it at a higher interest rate directly. But they do use the money you deposit to balance their books and meet the necessary cash reserves that make those loans possible, which is, in effect, lending out your money. When people request their money back en masse, banks face a liquidity issue because of the required fraction reserves they must keep. Directly or indirectly, without your deposits banks cannot lend out money.
mikeryan 4y ago
You need to re-read those articles. They don't say banks "don't lend depositor funds" At least the first couple on that page explain that banks don't "need" depositor money to lend and in fact they generally lend out money they borrow from a central bank since their loan outlay tends to outpace their deposits. But outside of the central bank reserve requirements the banks are free to loan our or otherwise invest their depositors cash, which is in fact prudent since cash "loses" value from inflation. Putting that excess funds into loans or other investments can all lead to what happened to SVB if a run on the bank over runs the reserves.
- jessaustin 4y ago
  ...banks don't "need" depositor money to lend... This seems like one sort of thing, in which money that used to be in a depositor's pocket is now in the bank and available for lending. ...and in fact they generally lend out money they borrow from a central bank... This seems like another sort of thing, in which money that previously did not exist has been created by the Fed changing a number in a spreadsheet so it's now available for lending. You might point out that in our system, these different-seeming things are essentially the same. If so, you're really agreeing with GP.

But there's this endless array of explainers saying they don't- https://www.google.com/search?q=banks%20don%27t%20lend%20deposits%20 https://www.google.com/search?q=banks%20don%27t%20lend%20dep...

borski 4y ago

Ugh. Okay, banks don’t take the money that you deposit, turn around and loan it at a higher interest rate directly. But they do use the money you deposit to balance their books and meet the necessary cash reserves that make those loans possible, which is, in effect, lending out your money. When people request their money back en masse, banks face a liquidity issue because of the required fraction reserves they must keep. Directly or indirectly, without your deposits banks cannot lend out money.

mikeryan 4y ago

You need to re-read those articles. They don't say banks "don't lend depositor funds" At least the first couple on that page explain that banks don't "need" depositor money to lend and in fact they generally lend out money they borrow from a central bank since their loan outlay tends to outpace their deposits. But outside of the central bank reserve requirements the banks are free to loan our or otherwise invest their depositors cash, which is in fact prudent since cash "loses" value from inflation. Putting that excess funds into loans or other investments can all lead to what happened to SVB if a run on the bank over runs the reserves.

jessaustin 4y ago
...banks don't "need" depositor money to lend... This seems like one sort of thing, in which money that used to be in a depositor's pocket is now in the bank and available for lending. ...and in fact they generally lend out money they borrow from a central bank... This seems like another sort of thing, in which money that previously did not exist has been created by the Fed changing a number in a spreadsheet so it's now available for lending. You might point out that in our system, these different-seeming things are essentially the same. If so, you're really agreeing with GP.