why do money banks want money from you for loans when the money they give to you is not even in their vault ?
In: Economics
It is and isn’t. In the USA physical money is managed/printed by the federal bank. But If the fed prints more physical dollars it doesn’t actually create more money and just causes Inflation.
the concept of Money is actually created by banks during the lending process and now a days it’s mostly just numbers on a balance sheet, via credit cards & wire transactions, and doesn’t rely on physical money as much. The bank can accept a deposit and then go to the fed to borrow against that and loan out usually 10x of the money in deposit.
Then those loan payments become the cash on hand for the depositors when they need it and the bank gets to keep some for operations and profit… And rinse and repeat as needed.
The bank is really a middle man in the process and is needed because we can all go to one place for a mortgage, instead of hitting up 100 friends then paying each one back on a regular basis.
Latest Answers