Need Money today no LoansDo You Need Money Today No Credits
The reason why bankers don't need your money to give loans.
Historical business introduction books generally consider banking institutions to be brokers whose task is to link borrower with saver and facilitate their interaction by serving as trustworthy brokers. Persons who make an earning beyond their immediate consumer needs can leave their untapped earnings with a serious institution, thus providing a pool of resources from which the institution can borrow to lend to those whose earnings are below their immediate consumer needs.
Whilst this tale is based on the assumption that bankers need your money in order to grant loans, it is actually somewhat deceptive. As shown above, the credit extension ability of banking institutions is constrained by the size of their customers' deposit. To spend more, a banking institution must attract more clients to attract new funds.
There would be no loans without funds on hand, i.e. funds on hand provide loans. Naturally, this history of credit to banks is usually complemented by the money multiple of the so-called fractionated reserves approach. Within a fractions system, only a fractions of a bank's funds need to be kept in the form of liquid funds or in a merchant bank's funds deposited with the CB.
This group' s level is determined by the minimum reserving obligation, the inverse value of which is a multiples of the amount of capital that the banking institutions can issue. When the minimum required amount of foreign exchange risk is 10% (i.e. 0.1), the multiples are 10, which means that a bank is able to borrow tenfold more than its own foreign exchange risk.
It is not the banks' capability to draw in new funds that fully limits the credit available to them, but the fact that the ECB's stance on increasing reserve assets is or is not guided by it. Given a specific system of monetar y policies and the absence of an accumulation of reserve assets, however, the only way for business banking institutions to enhance their credit allocation capacities is by securing new funds.
Again, depositors establish loans, and consequently bankers need your money to grant new loans. There are two corresponding postings on the face of the statement of financial position when a borrower grants a credit, one on the active side and one on the passive side. Loans are considered an investment for the institution and are at the same time settled by a new contribution which represents a debt of the institution to the investor.
In contrast to the above history, loans actually generate deposit. Well, that may seem a little scandalous, because when loans generate funds, personal bankers are moneymakers. However, you may ask: "Isn't the money supply the exclusive right and liability of the CBs? "Well, if you believe that the minimum reservation obligation is a mandatory restriction on banks' lending capacity, then yes, in a way without the ECB either easing the minimum reservation obligation or raising the number of stocks in the financial system, institutions cannot make money.
However, the fact is that the minimum reserving requirements do not serve as a mandatory restriction on banks' eligibility to grant credit and thus their capacity to generate money. Actually, the banking system first grants loans and later searches for the necessary funds. So, if banking loans are not limited by minimum reserving requirements, do they face any restrictions at all?
Firstly, there is the question that bank borrowing is constrained by viability concerns, i.e. when there is a specific credit need, bank borrowing choices are guided by their perceptions of risk/return compromises rather than reserves constraints. Against a backdrop where deposits are covered by Swiss insurance, a bank may be tempted to take unreasonable credit exposure.
Given that the Governments insurance policies for deposits are in place, it is in the best interest of the Governments to curb banks' undue appetite for risks. Therefore, supervisory own funds standards have been put in place to make sure that banking institutions meet a certain proportion of own funds to outstanding financial instruments. When there is something limiting banking credit, it is equity rather than minimum reserves.
Subject judgement coupled with ever-increasing propensity to make profits can cause some financial institutions to downgrade the risks of their asset values. Thus, even in the case of supervisory equity adequacy rules, there is still considerable scope for limiting banks' lending eligibility. Return ing expectation will then be one of the main restrictions on banks' eligibility to grant loans, or rather their readiness to do so.
That' s why the bank doesn't need your money, but they want your money. First, as mentioned earlier, a bank lends a loan and later searches for a reserve, but it searches for the reserve. Acquiring new clients is one, if not the most cost-effective way of securing these resources.
In fact, the target feed interest rates - the interest rates at which bank loans are taken out from each other - are between 0.25% and 0.50%, well above the interest rates of 0.01% to 0.02% paid by Bank of America for a default check account. There is no need for the bank to use your money; it is only less expensive for them to lend from you than to lend from other bank.