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Napanee, Ontario | You are getting a decent handle on it Pat.
The commercial bank borrows it at the overnight rate from the Fed - But it's at 0% right now, and has been for the past 6 years. So yes, the banks with a FED charter are getting free capital right now.
There was a really good discussion on this matter in Stock tock a while back.
http://talk.newagtalk.com/forums/thread-view.asp?tid=491527&mid=399...
Banks close when their default rates on loans surpass their capital reserve ratios. i.e if you are running 10% reserve ratio and 11% of your loansw default, you are wiped out. In the housing crises, where people put 0% down, some banks like citi and EU banks were levered up 30 and as high as 60:1.
When you buy a house and put money down, that money is the reserve that the bank can go borrow money against. So when you finance an asset with a bank, you are essentially creating your own loan. Riskier, or less liquid assets need more reserve.
Edited by OldMcdonald 12/13/2014 08:57
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Banking, one more time....
