Part 1: How Do Banks Make Money?
Community + Content Marketing
April 1, 2020
How Banks Make Profit
What’s wrong with that?
Well, the bank doesn’t just keep this $1,000 in a private vault waiting for you to withdraw it whenever you need to. This would cost the bank money.
Instead, the bank takes the $1,000 that you deposited and they lend it out to other people. This ‘other’ group of people can use that (your) money to buy the things they need. Eventually, they pay the bank interest fees for using your money (making you a money-making machine).
Banks make more money when they have more in their hands to lend out (think credit cards, loans, lines of credit, etc.). And this works really well for banks – they’ve even taken it a step further.
Playing the Game
In the “fractional lending game,” when you deposit $1,000 in the bank, the bank has the power to go to the magic scanner and turn $1,000 into another $10,000. Just like that, from nothing. As they see fit. When they see fit.
They take the money that you deposited and miraculously turn it into 5 or 10 times more in order to lend this extra money to other people that might need loans. Then, they make interest on every dollar that you deposited AND every dollar that they created from the magic scanner. In this way, banks are making revenue from two sources.
But this “game” is a game that only banks can play because if you and I try to print our own money, we’d go to jail (to learn more on the effects of printing unlimited amounts of money read this blog post). It’s these special powers that banks have, and the close relationships to government officials, that allow them to sustain the fractional lending model. But this comes with its own set of consequences.
As Saifedean Ammous, author of “The Bitcoin Standard,” states:
“Having the ability to print money, literally and figuratively, increases the power of any government, and any government looks for anything that gives it more power.”
“Banking has evolved into a business that generates returns without risks to bankers and simultaneously creates risks without returns for everyone else.”
Next time, we’ll learn how people like you and I pay the price when banks operate under this model. And how it affects our entire economy and the fabric of our society. So stay tuned.
Learn more about it here:
How Banks Keep You Poor (the Truth)