For example, when we buy things at a store say Wal-Mart, do they have a bank account themselves at an institution? Where does the money of our debit or cash transactions post to? I know cash gets picked up by an armored truck, but to where? Thanks in advance for assisting my curiosity!
In: Economics
Of course Wal Mart has a bank account. They have many bank accounts, probably at many banks. They use that money to pay salaries, but goods, pay for buildings, etc.
Well for one thing: *yes*, businesses themselves have bank accounts. There are personal bank accounts and there are commercial bank accounts for businesses.
But more importantly, loans are supposed to be *paid back*. That’s why fractional-reserve banking (usually) works out. The banks loan out 90% of their deposits, but it’s not like that money doesn’t come back. They’re loans. The people receiving those loans are going to be gradually paying the loans back, replenishing the banks’ reserves.
I bank big (really big) business. Yes they have bank accounts just like you do. They just have a bunch that they use for different things. Walmart has a receivables account where they receive credit card transactions and deposit money from the stores. They will have a payables account that they pay vendors and supplies. They will also have a payroll account that they pay their employees from. So yeah big business have bank account with banks.
Now to answer the question you ask in the title of if the post.
The bank lends out money that other business and people deposit. So like you say they keep 10% and lend out 90%. They lend money to business A. Who then in turns pays business B. Business B deposits the money from business B into their bank account. The money keeps moving in this cycle over and over again.
The cycle ends and then begins again when the money makes it down to the employee in the form of payroll who then buys things from Walmart and starts the cycle over agin.
People deposit money and make payments on the loans. When you spend the money, the store deposits it, so they can pay workers and suppliers.
Banks don’t really lend the money of other people anymore.
They borrow from the central bank and lend that out, instead.
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