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cropsey, il 61731 | If a bank had to have 100% reserves and I was a depositor, they would lend my money out to someone for a project, home, etc and that borrower would pay the money (my money) back with some interest. The bank and I split the interest and it all makes sense. In fractional banking if I have $100 deposited, they loan out $1000 and my $100 gets paid back with interest (that we still split), but then there is this $900 that didn't exist before now in the banks safe (with even more interest money). A little like basis in times of great volatility, the interest isn't really the concern. That $900 pile is a much bigger deal.
I'm sure there are other claws in the banking system that take part of the pie, but they just made a 900% profit (or something like that) on money that didn't exist. Or, they just laundered their $900 that didn't exist prior to the loan.
I'm not sure why any bank would close except that it might owe other banks the money that doesn't exist and they force the closure instead of just saying "rats, that didn't work out, lets try again". | |
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Banking, one more time....
