In the example that you provided, when the first national bank gets £100 and they give £90 to the second national bank, does the first national bank only have £10 on them?
I am not sure.. but I think what is meant that banks collect a percentage of benifits.. they keep that percentage.. which is that 10.. now the 90 that u put in the bank.. they don't keep it in the bank itself.. they give it to other banks in order to give loans.. and when the person who put the 90 in their account needs their money.. they will take that money from a bank and give it to that person for deposit... i am not sure tho, i might be wrong
The first bank loans £90 to a second person. The traditional assumption is that this is done in cash so the bank only has £10 left, but often banks loan money to their existing customers, which means the money may not actually leave the bank (depends what the customer does with it).
Hi Max! The bank doesn't need money when the loan is created, but it does need money if/when its customers take out cash or request that the money is moved to another bank. [This subtlety gives the bank more freedom than the traditional "fractional reserve" model, but not infinite freedom, because - where the fractional reserve model requires a bank to have the entire loan and then some extra, when it makes a loan - in this model no deposits are needed at the time the loan is given and money is only needed if/when the customer spends a portion of the loan]. Hope this helps :)
In the example that you provided, when the first national bank gets £100 and they give £90 to the second national bank, does the first national bank only have £10 on them?
I am not sure.. but I think what is meant that banks collect a percentage of benifits.. they keep that percentage.. which is that 10.. now the 90 that u put in the bank.. they don't keep it in the bank itself.. they give it to other banks in order to give loans.. and when the person who put the 90 in their account needs their money.. they will take that money from a bank and give it to that person for deposit... i am not sure tho, i might be wrong
The first bank loans £90 to a second person. The traditional assumption is that this is done in cash so the bank only has £10 left, but often banks loan money to their existing customers, which means the money may not actually leave the bank (depends what the customer does with it).
Hey y'all South African here🇿🇦 just want to clarify we have a comm. bank literally called First National Bank, it's not an example anymore 😂
The banks creates new currency out of thin air 3:22. So why do they need new deposits to create more loans 4:26.
Hi Max! The bank doesn't need money when the loan is created, but it does need money if/when its customers take out cash or request that the money is moved to another bank. [This subtlety gives the bank more freedom than the traditional "fractional reserve" model, but not infinite freedom, because - where the fractional reserve model requires a bank to have the entire loan and then some extra, when it makes a loan - in this model no deposits are needed at the time the loan is given and money is only needed if/when the customer spends a portion of the loan]. Hope this helps :)
@@economicsunlocked7404 Thanks for the reply. That explains why banks offer cash incentives to move your account.