Posted 12/12/2014 18:20 (#4236262 - in reply to #4236212) Subject: RE: Banking, one more time....
SW Ontario
Just thinking last part of what I posted is probably incorrect. I will leave it up and not edit so others can see the flawed logic.
If the defaulted million dollar loan is indeed sound money, then the $500 000 write down would end up as an expense on the bank's side. It would reduce equity by reducing retained earnings I think. With fractional reserve banking, one can now see it doesn't take many defaults to reduce a banks equity below the required ratio, or even worse to zero making it insolvent!
No wonder central banks are printing like crazy trying to create inflation.
Banking, one more time....
