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How Banks Make Money

One of the keys to understanding money is understanding how banking works. Having a grasp of how banks make money can help you make more informed decisions about where you keep your own money, and how you use your money to make more money.

The Business of Making Money

The first thing to understand about banks is that they exist to make money. Banks are businesses. However, instead of providing manufactured products, or offering some of the professional services we expect when we think of business, banks “buy” and “sell” money. (Of course, some banks do provide other services related to finances, including selling insurance and sometimes offering access to securities.)

Banks “buy” money from depositors. Then, they can lend that money out, “selling” it to borrowers. Banks often pay interest on deposit accounts. This is especially true of savings accounts, certificates of deposit and money market accounts. Banks may also pay interest on checking accounts. Banks want to attract more depositors to the institution. This way, there is more money available for banks to lend out. And this is where a bank makes its money.

Loans made to other bank customers (and sometimes to other banks) provide a bank with a way to earn more money. A bank may pay interest on a deposit, but the interest a bank receives on a loan is much higher. If you put $1,000 in a high yield savings account, you might only earn around 1.35%. The bank, though, might be able to loan $900 of that money out at an interest rate that is much higher. Auto loans might garner a rate of at least 5% for banks, and mortgage are in that neighborhood as well. Other types of loans can provide in excess of 14% interest (especially credit cards). The difference between the amount of money a bank pays out in interest, and the money it earns from loans, can make it a rather profitable business.

The way that banks earn money illustrates one of the reasons that banks compete for depositors. The more depositors a bank has, the more money it can loan to others for better returns. It is worth noting, though, that banks can’t always lend out all of the money it has in deposits. The Federal Reserve requires that depository institutions hold a certain percentage of their funds in reserve. For banks with net transaction accounts of $10.7 million to $58.8 million, that number is 3%. Banks with more than $58.8 million net transaction accounts must hold 10% of those funds in reserve. However, even with the requirement to hold funds in reserve, banks can still earn quite a bit – and the Federal Reserve (as of 2008) pays interest on required reserve balances.

How Banks Set Interest Rates

Banks decide on interest rates by using a number of different factors. A bank takes into account the following factors as it sets its rates:

  • Number of people who want to borrow money: The demand for loans can affect the sorts of rates a bank will charge. If a bank in a certain area is having trouble finding borrowers, it might lower rates to entice them.
  • Amount of money the bank has available to loan out: If banks don’t have much money to lend out, they might adjust rates to reflect that. A bank might increase the interest it pays on CDs and savings accounts in order to encourage depositors to keep their money with the bank so that the money supply available to the bank for loans increases.
  • Funds rate: This is the rate that banks charge each other for short-term loans. The target funds rate is set by the Federal Reserve, and it is usually fairly affordable for banks. Banks often use short-term loans from each other in order meet the reserve requirements the Fed imposes. Of course, if a bank borrows money in order to meet its short-term obligations, the loans it makes will need to have higher interest rates so that a profit can be made.

Banks also set interest rates on loans with help from individual customers’ credit situations. When a bank loans out money, there is a risk that the borrower won’t repay it. This means that the bank is out the original amount of money it loaned – and it won’t make money on interest. In some cases, a borrower may pay back part of the loan, and then default on the rest. In order to ensure that the bank gets as much of its money back as possible before a default, those who appear to be higher credit risks are often charged higher interest rates.

Banking and the Economy

Our economy relies a great deal on keeping the cycle of money moving. Banking helps this happen by taking money and then loaning it out. Indeed, if you think about this works, it becomes apparent that the amount money represented in the economy is much larger than what is “actually” there. This reality is enhanced by the electronic nature of many of our transactions. Consider how $1,000 seems to multiply, even if all the banks in the system have a 10% reserve requirement:

You put $1,000 in the bank, and $900 of that can be loaned out. So, that $900 goes into the economy and is spend on something: A car, groceries or some other item. The recipient of that $900 then puts it in the bank. The new bank can loan out $810 of that money. It’s not new money, though: It’s still part of the original $1,000 you put in. And, of course, the cycle continues, since that $810 is loaned out and spent, and then put into a bank by the recipient. The bank can then loan out $729 of that money. But, as you can see, at each stage, money is being spent, and someone is receiving it – and putting it bank into the bank. And all the time, banks are earning interest as loans are repaid. But that same $1,000 can be recycled over and over again.

As long as the system keeps working, the economy keeps growing. But, as we saw with the credit crunch and the recent financial crisis, once the money stops going around, things get a little dicey for our economy in its current form.

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Previous Comments
  |     |   Comment #1
Miranda makes this far more complicated sounding than is necessary. 

Banks lending on their own book make money on the difference between the interest that they charge on loans and the interest that they pay on deposits.  Few large banks lend on their own books;  they make money on the difference between the interest that they pay to borrow money and the interest that they earn loaning that money back out, and, far more importantly, fees.
  |     |   Comment #2
Last year I was calling banks to get local CD rates to make a decision on where to buy a CD.  I was appalled when I spoke to an officer at the main bank that I deal with who's interest rates are always rock bottom from others in the area.  He actually told me they didn't "need" the depositor's money because they could get "all" they wanted or needed from the Federal Reserve at practically a "0" interest rate!

If the Federal Reserve is actually doing this then what hope is there for the retiree who is trying to make just a decent CD rate to survive on?  I called the Federal Reserve and was told they don't just hand out tons of money to any bank.  There are restrictions on how much they can get and how they can get it.  It is not as easy as the officer at my bank made it sound like.  However, it does seem, the Fed's actions are what is keeping interest rates so low for savers.  BTW, I made sure that I do not buy CDs from that officer's bank.  I use them just mainly for checking at this time.  If they don't "need" my money, I will use other banks that do!
  |     |   Comment #3
It looks like the larger the bank, the more money it can borrow from the Federal Reserve at zero percent, and then turn around and purchase treasuries or bonds which pay 3% at no risk.  That is why the larger banks (such as Chase) do not need to pay any more than 0.01% to savers, since they can borrow from the Federal Reserve at zero percent, all the money that they want and need. The Federal Reserve has done a tremendous disservice to savers.  I would go as far as to say that its actions are irresponsible, since it is forcing otherwise conservative individuals and retirees, against their own better judgment, to get into the stock market because they are earning nothing on their savings.  Keeping my retirement account in a money market fund, my account of $46,000 earns 0.32 cents per month.  About 2-3 year ago the same account used to earn about $200 per month.
  |     |   Comment #4
Taking 0% and investing it in 3% Treasuries is not risk-free.

To get 3% you would have to buy a 10-year note.  The 0% loans are all short-term.  You would have to depend on rolling over those loans.  If interest rates went up, the value of your 10-year note would go down.  You would stuck with the choice of either selling the Treasuries on the open market at a loss or borrowing money at higher than 3% to finance your holdings.

In any case, (in normal times at least) a bank would have to maintain a certain level of core holdings or risk being shut down.

  |     |   Comment #5
32 cents/month?  Dont forget taxes.
  |     |   Comment #6
AARP, and/or the AARP lobby, has done very little, if anything at all, to promote the financial interests and well being of the retired conservative investors. Almost nothing is ever mentioned about the dilemma of the many fixed income seniors and, quite frankly, this is a bit suprising.
  |     |   Comment #7
To Miranda Marquit,

Thanks for trying to explain how the banks make money, however, your approach i s very naive and simplistic.
That is one of hundreds of ways the banks make money and the most basic of the basic approach and an excuse for the banks not to pay interest to their depositors.

I’m CPA and had work for auditing firms that had looked at banks ledgers entries and I’m not suppose to let everybody know of the banking secrets, but for the sake of the argument, I will give you an example of a simple bank ledger.
Every penny that customer deposits, becomes entered as liability in the books.
Every penny lent out as credit or loan, becomes income in the bank’s books.
Every penny originated as, let say house purchase, becomes income entry even though
the bank makes a check to the person or sends it to the other bank for deposit. When that checks comes back to the originating bank, is entered as liability against the income entry of the same check entered previously.

Huh, you say, well it is true, the bank made money out of thin air, remember, bank books must be in balance at all times, therefore the mortgage payments are entered as liability, remember the received money are liability to any bank.
Hard to follow, but this is only one example of how the banking system works, it is not obvious to the savers and the customers. I have not even mentioned the re-investments of the cash, securities, bonds, derivatives, stocks, reserves and many other sub categories of internal and external money sweep on daily bases and circular patterns of the bank assets.
It is very complicated and only top notch CPAs are allowed to look and manipulate such ledger entries.

So, please don’t get offended  by my explanation of the banks ledger entries, like I said, this is only one example, but yours is for the public to read and to give excuse for the low rates paid to the savers. The banks are under order from the FEDs and FDIC to keep the rates very low and has nothing to do with the present interest rates or banks profit-abilities arising from the present environment.
Look at the big banks, they are overflowing  in cash that comes back from hundreds of, off the books bets and investments. Remember again, the bank’s ledger is in balance at all the times, but the off the books investments are not regulated and are entered separately in the sub accounts, affiliates, investment brokerages, global sweep accounts and many many more undisclosed sub accounts.
Stressful Lou
  |     |   Comment #46
If the banks ledger has to be in balaance all the time, then how can it be when the bank has the real account and then posts the wrong amounts on  the persons on-line account? I have had 2 banks since moving to this area a year ago that have done this to me a low-income disabled senior citizen. I was put into a financial crisis and had my credit ruined and now trying to catch up with back payments. No matter what I did I was having my check returned and charged a NSF fee. I think I must have paid at least $500.00 worth of fees. I did get 4 of them back after they realized I had caught them at what they were doing. F.D.I.C. is working on it but of course the bank sent the statements from the real account, the one they accused me of not being able to handle correctly. I have been doing it since a teenager and also one of my jobs was supervisor of Collection Dept.with 25 to 30 girls under me for over 9 years.I may be elderly but I can and am still handling my financial business. Can't trust some of banks  and I got away from them at my attorney's request also!!!!!
  |     |   Comment #56
I know of one back was fined for the way they posted transactions causing this very thing to happen and since then the whole industry has been regulated to stop this very thing. Perhaps this is what was happening to you
  |     |   Comment #61
To Greg2,

Thanks for pretending to be a CPA after taking an Intro to Accounting course at your local community college and further confusing readers here. In fact, credits and debits, income and liabilities, are entered the way they are per federal regulations and GAAP (Generally Accepted Accounting Principles) rules and are not some industry secret.

Are banks underpaying savers? Sure, and they are not incentivized to pay more due to the way lending works these days. The problem is not the banks, the problems lie in the banks' incentives set up by the FED.
  |     |   Comment #8

I don't know if this "I am a CPA about to tell you bank secrets" message is being posted by you all over the place or if many people are copying it from the same source, but I do know this:  You can't even fake accounting terminology half convincingly.  I am not going to help you by explaining the errors so you can correct them next time, but it is obvious you are not a CPA.
  |     |   Comment #9
To Poster  #8.....

Thank you for being the first to question the post by Greg2. I am also a CPA(retired) and found the post to be rife with errors and ramblings to the point that it is almost as if it were written by a third grader. The statement at the beginning of the post..."Every penny lent out as credit or loan, becomes income in the bank's books"....is a preamble to the incorrect and absurd statements continued thereafter. Surely the banks can not be that bad or secretive, at least not the ones I have done work for.  lol   
  |     |   Comment #10
Most of this article gets summed up succinctly in a few seconds in the movie "It's a wonderful life".  Seems like another article written for 2nd graders, or someone who's recevely immigrated from a 3rd world country.
  |     |   Comment #11
I agree that AARP and other senior oriented organizations have said little about how the low rates have impacted retirees.  Even if they did raise big concerns, the Fed and Government will ignore it and be focused on the young unemployed and not the old retired sector of the US population.
  |     |   Comment #12
I think this was a well written article.  Yes, I'm sure there are more technical aspects that could be explained in more detail  But that wasn't the point.  It's a shame some people here seem to have nothing better to do than insult the author.
  |     |   Comment #14
Banks are definitely in the business of making money; there's absolutely nothing wrong with this. What I find truly egregious is that most banks, especially the largest ones, keep two sets of books. One is for the auditors and the Fed. It's in perfect order....the numbers are in balance.

The second one is what the banks use for themselves and where they "cook the books," fudging numbers in order to give themselves their end-of-year bonuses. No one but the upper executives can look at this particular one.

That's all that needs to be said.
  |     |   Comment #15
Gee, nobody mentioned another way banks make money...they lie, cheat and steal it too.  No, not all banks but far more often thanmost would imagine!
  |     |   Comment #16
Miranda’s article is amateurish and for beginners, does not belong here.
Greg2 did bring a valid points of how the banks make money and the irrelevancy of the interest rates to profitability ratio,
The second sets of books are standard for most banks and that is where they make the money.
Who ever supports Miranda is a troll on this web site.
  |     |   Comment #17
Rather pathetic reaction to this article. To criticize mistakes would be alright, but just to denounce it as amateurish and naive/simplistic and thus not belonging here is over the top. As long as there are no factual errors, Miranda's writing may well be helpful to some visitors of this site. So STFU!
  |     |   Comment #18
Whoever supports Greg2 is the REAL troll on this website.
  |     |   Comment #19
Inforay,  .32 (.0083%)?  Is that factoring penalty fees? ;)  Smells like Chase Savings.   2-3 years ago it may have been WAMU and those days are long gone.  Seriously, time to throw in the towel and move on.
  |     |   Comment #20
What are Miranda’s credentials?
Who is defending her?
A family member(s) or friend(s) like: darkdreamer4u, Anonymous - #18, Anonymous - #12 and Anonymous - #8, who might be the same person sticking the head for a bellow average artical on the banks and pretending to be know it all troll(s).
People have rights to express their feeling about Miranda’s bad posting, get over it.
  |     |   Comment #21
Ken, when is that post on how the Fed works supposed to come out?  People here keep airing their ignorance on this, and it is getting old.
  |     |   Comment #22
Craig PD:  Actually my retirement account is with T. Rowe Price, Summit Cash Reserve Fund (money market account).  I have been too badly burned to get into any of their stock funds.  It is either the Prime Reserve Fund or Summit Cash Reserve Fund. No penalty, no fees, a strightforward retirement account.   Chase pays even less at 0.01%!!  Wish I had the nerve to throw in the towel!  I hope people won't post too many comments about my stupidity.
  |     |   Comment #23
To: darkdreamer4u - #17

You wrote:
“As long as there are no factual errors”

This is a factual error that Miranda wrote:
“The way that banks earn money illustrates one of the reasons that banks compete for depositors.”

Show me one bank that compete for deposits and I let you off the hook from your erroneous defense of Miranda’s posting.

Every fact she posted is not actual knowledge of the way the banks make the profits.
  |     |   Comment #24
if banks weren't interested in attracting depositors, then wouldn't you expect them to not offer any interest bearing accounts whatsoever? The mere fact that you earn interest on money you deposit with banks indicates to me that they want you to do so for whatever reason(s). One reason may well be to build a relationship in hopes you borrow money down the road at a profitable interest rate - it nevertheless constitutes competition for your deposit.
  |     |   Comment #25
darkdreamer4u - #24 and Miranda are both naive when it comes to:

Banks paying interest on deposits and
banks that want you money without paying you interest.
Those are two different scenarios and has nothing to do with Miranda’s posting of “How Banks Make Money" and your support of her.

No bank is fighting for your money today, since they can get it from the FEDs and back door windows and from other banks as inter-bank loans at very low rates or near 0% and most of the back door money are overflowing into every bank that finances short and long term obligations.

If the banks are allowed by FDIC to close your CDs, they would have done it by now and the interest paid would be next to nothing on those contracted CDs, since most of the CDs are long term obligations, the banks hate to keep them on the books, since there is so much free money available around.

QE2 is coming soon and the banks are already lined up to get their share for pledging worthless securities as collateral for it. So, no bank with right mind is out there waiting for your deposit. If you know one, please post it here.
  |     |   Comment #27
@Steve #25, you did not address the question by darkdreamer4u. If banks did not want depositors money, they would not be offering any interest on it - not even 0.01%! According to your post, the banks would have closed current CDs if they could (and this is probably true for CDs paying higher than current rates), but it does not explain why they pay anything over 0% on NEW CDs... after all, if they don't want your money, why would they pay for it? We all know they are not a charity... 
  |     |   Comment #28
Justin, you sound like darkdreamer4u, starting fight for small technical issues.

Steven has the valid point. Banks pay small interest because they re-invest your CD money at a higher rates. They act like sharks, give me the money and don't ask for good rates, we will keep the profit made out of your money. Do you see that, well...that is how the banks operate and pay you very small interest.

They can do the same thing with the FEDs funds they received or will receive again and again.
  |     |   Comment #29
#28, yes money is cheap now, so banks can pay you little, but they still want your money, because otherwise they would not pay you at all. Steve claimed banks don't want your money. That is false. They do, and they are paying "market" prices for it, which based on Fed's policies today are very little. Whether banks pay you 5% and loan money at 8% or pay you 1% and loan money at 4%, they are in business of making money just like the article describes. You can claim that makes them "sharks" and yes, they will "keep the profit made out of your money". So what? Welcome to capitalism. Guess what - any other for-profit company you deal with is the same way - they are they for the profit made out of their customer's money...
  |     |   Comment #31
Come on guys, of course the bank still want deposit. The Fed 0% loan to bank won't be forever. they need to provide their customer comprehensive services to buid relationship and sell them products.
  |     |   Comment #32
My contribution and question is: why so many Chase branches? Near my zip code of 60062, you can find there are at least 30 BRANCHES nearby, in fact within 7 miles of me!  I believe most of these have sprung up in the last 5 years or so. Is Chase so flush with cash and has nothing else to do with it, or maybe they are trying to buy up all real estate in the north Chicago suburbs??  I'm sure that they don't need so many branches merely to handle retail customers. Can't be.
  |     |   Comment #33
JohnK, what an astute comment!  In my area in California, Chase not only took over all the Washington Mutual branches, but is also opening many more new branches in the close vicinity.  In other cases, when a bank took over, they shut down branches and laid off employees.  In the case of Chase, they are also doing a lot of hiring and every branch has a huge banner outside which says "Now Hiring."  Pretty much evenyone I know has a Chase account and Chase credit card now. I had been wondering about this, but since they seemed like a good employer (sone of my friends are now working for Chase) and the service is decent, I hadn't given much thought to the motivation.  My concern is htat now that so many of us have linked accounts and linked bill pay it is going to be too difficult and time consuming to close out accounts, so maybe they may start raising our fees, which has already happened once.  They will, however, link your accounts if you meet with someone, to avoid the fees.
  |     |   Comment #34
Well-written article, but this is just a basic way of how banks make money. Aside from lending money out to earn interest, banks also make money from the various fees they charge to customers and non-customers alike. Examples include overdraft fees, savings overdraft protection fees, debit card fees for using atm/debit cards at foreign atms, merchant services fees for business owners who utilize credit and debit card payment processing systems through the banks they use, loan origination fees, administrative fees, etc. These are just examples, but I am pretty sure you all can see just how complex the money-making machine is at most of these banks we are talking about.
  |     |   Comment #36
Greg 2 explained it best.  Keep in mind banks also lose money due to delinquent debt, fraud, and overdrafts.  Banks pay employees and employee benefits.    Not all are great! Some are awful but most I find are good.    I also have to add that banks also borrow from other banks at low interest rates.  I am also aware that China lends to us though I am not sure if it first goes to the FED then the FED lends to the banks.  Its true that FED lends to banks but as do investors.  Its complex.  Not a straight definition.   

  |     |   Comment #37
I have approximately $15,000 that needs to remain liquid in a Suntrust monry market account. It pays 0.05%. Since January, I have made $3.68. Of course banks in the business to make money, but it is appalling that a business that advertises to be the depositor's friend rips him or her off so blantantly. Everyone who understands the basics of banking knowas that your deposits are shaifted back and forth on a daily basis to earn 3-6%--making 0.05% laughable. Add to that the amount a depositor needs to maintain in a bank to avoid service charges on checking and other accounts, and it's like legal stealing. It makes the mattress look like a good deal. Who said we don't need financial regulation? 
  |     |   Comment #38
Looks like there are a few CPA's on here can you answer these 5 questions?

1. Were you told that the Federal Reserve Bank Policies and Procedures as well as the Generally Accepted Accounting Principles (GAAP) requirements imposed upon all Federally-insured (FDIC) banks in Title 12 of the United States Code, Section 1831(a), prohibit banks from lending their own money from their own assets or from other depositors? Did the bank tell you where the funds for the loan were to come from?

2. Were you told that the contract you signed, the promissory note, was going to be converted into a 'negotiable instrument' by the bank and become an asset on the bank's accounting books? Did the bank tell you that your signature on that note, makes it 'money', according to the Uniform Commercial Code (UCC), sections 1-201(24) and 3-104?

3. Were you told that your promissory note would be taken, recorded as an asset of the bank, and then sold by the bank for cash, without "valuable consideration" given to obtain your note? Did the bank give you a deposit slip as a receipt for the promissory note you gave them, just as the bank would normally have to provide when you make a deposit to the bank?

4. Were you told that the bank would create a new account at the bank that would contain this money that you gave them?

5. Were you told that a check from this new account would be issued with your signature, without your knowledge, and that this new account would be the source of the funds behind the check that was given to you as a "loan"?

If you answered "No" to any of these questions, YOU HAVE BEEN CHEATED! How does that make you feel? It is now up to you to demand your deposit back and to challenge the validity of this bank loan Agreement. Since the banks and other lending institutions cannot allow "full disclosure" of your loan Agreement and cannot answer your challenges about it, their silence is the key, along with other necessary steps that can be learned by you, to get your deposit back and/or "payoff" their alleged loan to you.
  |     |   Comment #39
The bank treats the Note like a Deposit of a check; they take it as a loan from the issuer; deposit monetize it (create money from it) then they lend that money back to you in the form of a mortgage; the great irony is that the "borrower" finances his own loan through his signature. 
Also they usually sell the note in huge bundles with other notes as "security packages" and make a killing constantly selling your note... believe it or not they get paid the principal amount of the note more than 2 or 3 times; before you ever start making monthly payments to "amortize" the note. 

This is the big secret in bankingand it does not Follow GAAP; Many CPA'S have attested this is what the banks are essentially doing; and Banks pretty much pay off Auditors to keep this hush hush... Essentially if ever asked to "PROVE" that someone owes them; they can not... for they are not the holder in due coarse anymore (they probably sold the note). 

If you read Modern Money Mechanics you can see how Money Is created 
"Assuming that someone deposits 10.000$ in bank A. Bank A will then have the ability to lend out 9000 $ (with a 10 percent reserve requirement). But do these 9000$ actually come from the initial 10.000$ deposited? From the "Modern money mechanics" I get the impression that banks create this money as a cheque or electronic transfer: 
"If business is active, the banks with excess reserves 

probably will have opportunities to loan the $9,000. Of course, they do not really pay out loans from the money they receive as deposits.   If they did this, no additional money would be created. What they do when they make loans is to accept promissory notes in exchange for credits to the borrowers' transaction accounts. Loans (assets) and deposits (liabilities) both rise by $9,000. Reserves are unchanged by the loan transactions. But the deposit credits constitute new additions to the total deposits of the banking system.

All it takes is someone to "Depose" a Promissory Note into the Bank to create the funds.... then they monetize the note and pay back the person the value of the Note they essentially stole ;) then they sell the note to make even more money cause they think people are too stupid to realize they have claim to the note in the case of foreclosure 

This is based on my understanding; maybe some banks follow the rules and do things right and lend their own money that people lent them from actual deposits (doubtful nowadays) actually the complete irony is that in order to win a court case you have to prove damages did we ever decide if intangible damages are damages? after all the money they lent you never really existed and since its a renewable "resource" if you will; that has almost no limit really they are not harmed at all because they never risked any of their own money in the first place... they could have lent you a million dollars and then deleted, it would of had the same net effect on them as if they lent it to you to buy a house 

If someone can prove this wrong I would like to point out that the book keeping entries that the banks make when getting a PNote from a "borrower" looks exactly the same as when a "customer" lends or "deposit" a check into his or her checking account its the same exact entries. 
Ask any accountant if you "lend the bank money" when you deposit money/checks into a bank account then ask them if the bank "lent you money " when you withdraw that same money they don't just like they don't lend you anything when you hand them a promissory note loaning someone money to loan you money is not a loan.

Read more: http://wiki.answers.com/Q/Do_banks_provide_consideration_for_promissory_notes#ixzz25EWUKcf8
  |     |   Comment #40
But can someone still explain other channels of generating money apart from loans, because i definitely know that it is not only loan that bank's uses to generate their income.
  |     |   Comment #41
We are anomynous We are legion We never forgive We never forget Expect us
  |     |   Comment #42
RE: #41 - Given that you cannot spell anonymous, it makes sense that you prefer to remain "anomynous."
  |     |   Comment #43
Folks, Here's a simple thought that will bypass the global banking cartel: 1. Stop using debt -- live debt free. 2. put two or three months worth of expenses aside for emergencies, and don't worry about how much intertest you make. 3. work very hard (I work two jobs) and save your money until you can buy real assets with cash (cars, equipment, homes, businesses, etc.) 4. Live "job optional", 5. live on a budget that is less than you earn. For example, I own my cars, stuff of value, and a home--the things I own are very humble but debt free, and I have 3 months of cash set aside for minor set backs. I save for investments in real assets and have some cash in the SEC regulated slot machine. I decided years ago that I would live debt free, and no longer a slave of the global fascists and their banking scam. I've had to make sacrifices, but I am free -- those in debt are just slaves to the banking masters. Even our governements are now in slavery to their banking super-lords. (Don't waste my time telling me about the opportunity cost of capital, that's just a banking jedi mind-trick -- that garbage doesn't factor in risk and quality of life, which should be part of a decision.)
  |     |   Comment #45
Unfortunately this article is completely inaccurate. Banks do not, and have not for the past 100 years, lend out deposits. They do keep "deposits" in reserve, with the Federal Reserve (as cited), but those deposits are kept within the Reserve System, not the particular bank system.
Loans are credited to the borrowers account, out of nothing more than typing numbers and handing them a check, created of money that did not exist 10 minutes before.  I wish deposits were as simple as portrayed above - but that's not the case.
Sources: Read "Modern Money Mechanics," issued by the Federal Reserve Bank of Chicago.
  |     |   Comment #48
the only true money is gold and silver. the real true crook of banking was Amstel Baier a goldsmith from frankfort Germany who learned how to charge people to care for there gold , while he was charging to lend it out. He latter changed his name to Rothchild which in German means red shield which was the family shield. Later they added the 5 talons of the eagle and a arrow for each son and today we call it fractional reserve banking.
  |     |   Comment #54
This article should have covered the role banks play in the velocity of money. Also, if banking was as simple as buying and lending money while maintaining healthy loan-loss reserves we'd be in a better place. Small conservative banks do basically that and prosper. When banks become speculators of the highest order look out below. I say below because the pain will be transferred to you, the schmuck on the street with the least influence. After all, they are too big to fail...so they say.
  |     |   Comment #55
They trade your savings account.
  |     |   Comment #63
and putting it bank into the bank ?

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