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26 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 ...
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  • 385
21 votes
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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 ...
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14 votes

Implications of abolishing Fractional Reserve Banking on mortgages and interest rates

There is a long standing problem in most discussions of Fractional Reserve Banking (FRB), around the precise definition of money. Cash money (that is M0) is an asset on the banking system balance ...
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  • 2,690
14 votes
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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 ...
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  • 15.9k
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 ...
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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%? ...
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  • 260
12 votes

Why is fractional reserve banking allowed?

I recommend a careful read of the Wikipedia page for Fractional-reserve banking because it seems you are confused about how fractional reserve banking works. Banks only lend out money they have under ...
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  • 15.9k
11 votes
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How much money is wire transferred every year worldwide?

If you're just trying to understand the volume of electronic transactions generally to an order of magnitude, it's in the quadrillions of dollars per year. According to this document from the US ...
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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 ...
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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 ...
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8 votes

List of EU banks that received state aid

Pro Publica keeps an ongoing list of bailout recipients in the United States. Here is a report on the UK bailouts during the crisis: The Comptroller and Auditor General’s Report on Accounts to the ...
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8 votes
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Are the figures quoted in this liblabcon's blog post accurate? (topic: UK banks)

Source:- Bankers cost this country £456.3bn in fraud In the UK, where the government bailed out Royal Bank of Scotland Group Plc (RBS) and Lloyds Banking Group, the total outstanding support ...
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  • 196
8 votes
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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....
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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 ...
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8 votes
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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 ...
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  • 41.6k
6 votes

Banking System, Canada & US

Limiting the scope to the question of why the US encouraged the proliferation of many banks, one important contributor was the 1927 McFadden act, which placed significant restrictions on interstate ...
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6 votes

Banking Regulatory Frameworks, between the 1973 collapse of Bretton Woods and the introduction of the Basel Accords in 1988?

I found two of two papers discussing this period, the second at length. Throughout the 1970s, the capital position of many banking institutions declined significantly. To address this decline, in ...
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  • 15.9k
6 votes

What is the necessity of the FDIC in the US banking system?

You provide a generally correct impression of history (i.e., there were lots of runs on banks by depositors in the US until federal deposit insurance was established— a good history is provided by ...
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6 votes

Why is fractional reserve banking allowed?

This is meant to add to @BKay's answer. Here are some examples that might help to see what's happening when a bank makes a loan. A bank's balance sheet The image below is text taken from Greg ...
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  • 9,107
6 votes

How is monetary policy fair in the current economy?

The description you're providing of how interest works is based on a couple of fairly common misunderstandings about how the system actually works, so lets clear that up first. Fractional reserve ...
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  • 2,690
6 votes
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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); ...
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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 ...
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  • 583
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 ...
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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 ...
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6 votes
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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 ...
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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 ...
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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 ...
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  • 41.6k
5 votes
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How does the money supply behave when bank loans are repaid?

The money is removed when the loan principal is repaid. The actual point in the loan this occurs depends on the loan terms. For a typical compound interest rate loan, this means a small portion of the ...
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  • 2,690
5 votes

How would banking in UK change if minimum required capital to open own bank would be £100k instead of €5m?

The minimum required capital matters, but in the opposite direction: the more capital you have, the more likely you can challenge big banks. Because the costs of a new bank look like this: (http://...
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