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Not to mention that for every dollar they are holding they can lend out a lot more. Deposits give them more investment/lending power.
by doki_pen 13y ago
Not to mention that for every dollar they are holding they can lend out a lot more. Deposits give them more investment/lending power.
- carlosrt 13y agoSort of. If an individual bank has $30M on deposit, then they only have $30M to lend to mortgage borrowers. In order to be able to have $30M in deposit they must have investors invest $3M into the bank (i.e. Tier One Capital must be ~10% of deposits). If this were a real life example this fictional bank would have to borrow from their local federal reserve bank to cover any daily cash flow needs (e.g. Customers withdrew more money from their savings accounts then they deposited in one day).