Posted 12/12/2014 17:53 (#4236212 - in reply to #4235551) Subject: RE: Banking, one more time....
SW Ontario
This all makes sense but we must not forget that the bank uses the asset for which the loan is issued as collateral. The newly created money is sound as long as the asset maintains or increases in price. That is really why they are running into trouble; deflationary pressure and reduced asset prices. That is why banks have loved lending to agriculture the last five years; prices in this sector have gone up.
Iowegian; am I correct in assuming that if a loan goes into default and the bank gets back 50 percent of what was loaned out, based on fractional reserve the equity portion which the loan was backed by is reduced by 50 percent (assuming 10:1 ratio)? Ie a million dollar loan default (recover 500 000 on sale of asset) would reduce bank equity by 50 000?
Banking, one more time....
