41 votes
Accepted

Why are banks providing mortgages?

A bank (or anyone else) considering possible investments needs to consider both return and risk. Stock market investment is risky in two respects: a) individual stocks may achieve more or less return ...
Adam Bailey's user avatar
  • 8,369
27 votes

Why do banks take deposits if they do not need them to make loans?

I think there are a few separate issues here. First, semantics: if an institute doesn't let you deposit money into your account, I think we'd be hard-pressed to call it a "bank". This really ...
MichaelS's user avatar
  • 395
21 votes
Accepted

Are there examples of state banks in history?

Yes. An important and currently highly relevant example is India. In 1969, the Government of India issued the Banking Companies (Acquisition and Transfer of Undertakings) Ordinance, 1969 which ...
Ishan Kashyap Hazarika's user avatar
14 votes
Accepted

Why hasn't massive derivatives exposures at banks already led to disaster?

While gross notional exposures are huge, net exposures at the banks are much smaller, on the order of 0.1 percent of gross exposures. Since most financial risk (but perhaps not operational risk) is ...
BKay's user avatar
  • 16.3k
14 votes

Mortgage loans from foreign banks at lower interest rates

The low interest rate will be in a different currency. If your domestic currency falls in value, the value of the mortgage in terms of the domestic currency goes up. Entities borrowing in a foreign ...
Brian Romanchuk's user avatar
14 votes

Mortgage loans from foreign banks at lower interest rates

What does stop me from taking a loan from a bank in a rich EU-country to build or buy a house in a poor country like Russia, while having EU-level interest rates below 3% instead of the Russian 15%? ...
jpa's user avatar
  • 430
11 votes

Are there examples of state banks in history?

In France a number of banks were nationalized after the 1939-1945 war. by the law of December 2, 1945. In short, that law first nationalized the Banque de France and gave it the monopolistic privilege ...
Serge Ballesta's user avatar
11 votes

Why are banks providing mortgages?

Banks are in the business of lending money. If they didn't do this, then they wouldn't be called a bank. They would be called a fund manager or stock broker or some sort. Mortgages are safer ...
uberhaxed's user avatar
  • 229
10 votes

Are there examples of state banks in history?

Currently in Sweden the bank SBAB, web page sbab.se , is fully owned by the Swedish state. For a period, after the 1990 bank crisis, the bank Nordbanken was state controlled ( as alternative to going ...
ghellquist's user avatar
9 votes
Accepted

Why are the financial intermediation theory of banking or fractional reserve theory of banking still accepted despite evidence to the contrary?

There are several reason for it. Please note the reasons are not necessarily listed in order of importance, the last point is actually most relevant answer to your question. The 'Evidence' You Cite ...
1muflon1's user avatar
  • 56.4k
8 votes
Accepted

How successful is the Islamic banking model?

In Ernst & Young 2016 Report we read (p. 17) that for the period 2010-2014 the Average Return on Equity for "Participation Banks" (this is the secular name of Banks under Sharia) was $12....
Alecos Papadopoulos's user avatar
8 votes

Why do banks take deposits if they do not need them to make loans?

This isn't the first time I've seen people claim that this Bank of England article says banks don't need to take deposits, but in fact the article actually says the opposite. In order to make loans ...
Ross Ridge's user avatar
7 votes
Accepted

What institutions are examples of "shadow banking"?

While whomever told you about "shadow banking" in China is correct that in an international context, the term can often refer to informal banking arrangements (the earliest use of the term); ...
dismalscience's user avatar
7 votes

Why are banks providing mortgages?

Because it is still profitable for bank to do so. Your question is analogous to the question, "why do some car companies create cheap cars with low markup when there are luxury cars that often ...
1muflon1's user avatar
  • 56.4k
6 votes

What percentage of a bank's deposits are lent out?

To see how much a bank lends in comparison to deposits, you can look at what is called the loan-to-deposit (LTD)ratio of banks in their annual reports. Usually it is between 60% and 90% but as you ...
Alexis L.'s user avatar
  • 593
6 votes

What institutions are examples of "shadow banking"?

From the New York Fed: Shadow banks intermediate credit through a wide range of securitization and secured funding techniques such as asset-backed commercial paper (ABCP), asset-backed securities ...
Kitsune Cavalry's user avatar
  • 6,628
6 votes
Accepted

Why did the stock of consumer loans held by commercial banks jump in March 2010?

Because of a change in regulation about how different accounts are to be recorded. That change was stated in the Financial Accounting Statements No. 166. If you look into Notes on Data relating the "...
luchonacho's user avatar
  • 8,591
6 votes

Do banks really have people on the boards of corporations, and why?

What you describe is neither unusual nor pernicious, and occurs more commonly at smaller companies when the company has borrowed significantly from a single bank. Larger companies have direct access ...
dismalscience's user avatar
6 votes
Accepted

Would capitalism without banks work?

You ask: "what would happen if every country in the world were to make a law that would make it illegal to lend money at a positive rate of interest?" We know what happens, because we've already seen ...
410 gone's user avatar
  • 8,158
6 votes

Breaking Up The Big Banks

This is an interesting question. The banks themselves will not naturally divide themselves. There are great returns to scale in banking, and risk can be greatly diversified by being massive and ...
RegressForward's user avatar
6 votes
Accepted

Why are banks allowed to resell mortgages?

A bank selling mortgages does not, by itself, increase the money supply. To see this, work through the balance sheet implications step-by-step: A bank makes a mortgage loan, swapping cash assets on ...
dismalscience's user avatar
6 votes

Why do banks take deposits if they do not need them to make loans?

I think this perhaps seems/reads like a theoretical chicken-and-the-egg scenario, but IMO it's not really. The reality is just that fiat currency is like magic, and created out of nothing. Rather ...
unknownprotocol's user avatar
6 votes

What happens with corporate deposits when a bank goes bankrupt?

In simplified terms a bank or shadow bank (non-bank financial intermediary operating a balance sheet similar to a bank balance sheet) holds a mix of cash, marketable securities, and investment ...
SystemTheory's user avatar
6 votes

Are there examples of state banks in history?

Yes in USSR all banks, like everything else was state owned. Although there is no much literature on it as the system was opaque. You can have look at Kuschpèta (1978) for some exploration. why was ...
1muflon1's user avatar
  • 56.4k
5 votes

Would capitalism without banks work?

Under most capitalism-like systems, companies are funded in two ways. One is debt with positive interest, the other is by selling equity to shareholders. If you could effectively prohibit debt, then ...
Dan's user avatar
  • 1,356
5 votes

Mortgage loans from foreign banks at lower interest rates

I agree with @BrianRomanchuk's +1 answer but I would like to expand on it to give you some more intuition why that holds. According to a simple monetary model of exchange rates, the exchange rate ...
1muflon1's user avatar
  • 56.4k
5 votes

Why do banks take deposits if they do not need them to make loans?

Banking is confusing, and a lot of explanations apparently make things worse. In this case, ignore whatever you read, and go back to first principles. By definition: balance sheets must balance. ...
Brian Romanchuk's user avatar
5 votes
Accepted

Is it true that the Federal Reserve is not federal and has no reserves?

Is it true that the Federal Reserve is not Federal and has no reserves? Both claims are blatantly false. On Reserves Fed literally has power to create new reserves for other banks or for its own ...
1muflon1's user avatar
  • 56.4k
5 votes

Are there examples of state banks in history?

Some sort of government involvement is the norm. In the US, the FDIC and Federal Reserve Bank are central parts of the banking industry, and while they are in some sense "independent", they ...
Acccumulation's user avatar
5 votes

Are there examples of state banks in history?

In the UK in 2008, the government took majority stakes in Royal Bank of Scotland and Lloyds Banking Group (two of the country’s four largest retail banks) to prevent their bankruptcy and the ...
Mike Scott's user avatar

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