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 ...
- 8,311
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 ...
- 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 ...
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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 ...
- 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 ...
- 9,852
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%?
...
- 430
11
votes
Accepted
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 ...
- 6,374
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 ...
- 211
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 ...
- 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 ...
- 249
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 ...
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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....
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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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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); ...
- 6,374
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 ...
- 54.4k
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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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 ...
- 6,578
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 ...
- 583
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 "...
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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 ...
- 6,374
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 ...
- 8,123
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 ...
- 3,467
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 ...
- 6,374
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
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 ...
- 760
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 ...
- 54.4k
5
votes
Why do banks and stock exchanges close/have fixed hours?
The answer is simple and it is due to the conduct of business and conditions relating to the early days of exchanges and banks. Then, there was no interest in trading or providing liquidity to ...
- 1,990
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 ...
- 1,346
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 ...
- 54.4k
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. ...
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