2006-08-19 08:18:01 · 4 answers · asked by onisuje 1 in Business & Finance ➔ Other - Business & Finance
Banks take in deposits for one reason, to make loans. If they held 100% of all money brought through the doors, the bank would be limited to only one revenue stream (fees and service charges). Not only is it a matter of banks wanting to make more money through charging interest on loans, it also has to do with the Federal Reserve Board (the Fed). The Fed uses reserve requirements (the term for the percentage of deposits that must be held by banks), among other tools, to control monetary policy. Thus, a 100% requirement would make the Fed have to rely more heavily on its other tools (such as Open Market transactions and Interest Rates) , which may not be as effective. Furthermore, banks taking in deposits and lending money actually creates new money (not in dollar bill form, of course), which is why the Fed likes to control reserve requirements. Lastly, it is a huge security hazard as some bank branches have tens of millions of dollars in deposits. Well, I hope that helped shed a little light onto why a bank wouldn't keep 100% of deposits on hand.
2006-08-19 08:45:15 · answer #1 · answered by backupplanc 2 · 0⤊ 0⤋
Banks loan a percentage of the money on deposit. If they were only in the business to process checks they would probably cost the same as a money order.
2006-08-19 15:43:12 · answer #2 · answered by Barkley Hound 7 · 0⤊ 0⤋
Because that would be a lot of money not earning them interest. Why would a bank be open if they just held your money in the vault? Why not just keep your money under your mattress?
2006-08-19 15:24:14 · answer #3 · answered by Anonymous · 0⤊ 0⤋
Robbery! Individual accounts are usually insured for only about 100k each....the bank would fold immediately if only robbed once; makes no sense!
2006-08-19 15:24:37 · answer #4 · answered by sweet ivy lyn 5 · 0⤊ 0⤋