Where does the money come from?

Question

When you go to the bank for a loan, where does the money come from? Under the Bank Act, banks are prohibited from loaning out other persons deposits and also prohibited from loaning their own money.

Where does it come from then?

When you go to the bank for a loan, where does the money come from? Under the Bank Act, banks are prohibited from loaning out other persons deposits and also prohibited from loaning their own money.

Where does it come from then?


So if fractional reserve banking were used, and the banks maintained a set percentage of assets:

A small town with say 100 houses- all purchased for say $40,000 each. Assuming the purchasers placed 25% down, that would require $30,000 per house financing - where would the small town bank get 3.33 million (remember, 10% in assets must be kept) dollars to provide all these mortgages?

Answer 1

Basically, it does come from savers' accounts however, They can resell the loans, to a government agency, or bundle them and sell them to a third party.

There are two types of reserves: Fractional reserves and Ready reserves.

All money is a creation, and you might look into what is called fiat currency to understand the concept of US monetary system.

Answer 2

Banks work with a number of private investing firms to allow them the flexibility to do loans. They really only work as a middle man between the borrower and the investor. They make their money on the fact that you will have to pay the interest on the loan. The bank makes a percentage of that interest. As far as the rest goes the bank also earns a percentage of interest off of savings accounts and such. If a bank gets robbed then 80% of that money is insured by the Federal Reserve. All money in the US is backed by the Federal Reserve which is backed by gold, taxpayer dollars, and the GNP (Gross National Product)

Answer 3

Where'd you get that idea?

Look up fractional reserve banking.
The worlds biggest Ponzi scheme.

Your example is correct but not realistic. The bank would have to support that amount. It would be made up of individual and business deposits. In reality, the bank would serve a larger area. Businesses make up a larger chunk than meets the eye.

Answer 4

I think you may have misinterpreted the Bank Act. Do you have a reference? I believe that the actual requirement is for a bank to lend no more than a certain percentage of their assets. If they could never lend any of their deposits, there would be no need for federal deposit insurance.

Answer 5

the federal reserve determines the required amount of assets in holdings a bank should hold back from being loan currently the reserve requirements are 10%

Answer 6

I don't know where you got your information. The business of a bank is to borrow money for depositors in the form of savings and checking accounts and to loan it to other borrowers in the form of various types of loans. The bank earns its money becuase it charges more on loans than it pays on deposits.

Answer 7

Steve D is correct 100%...of course that's where the bank get's its money...it doesn't just appear. Another reason why each member is insured by the FDIC for up to $100,000.

Answer 8

Uuuhhh the bank?

Answer 9

profits from the loans they give out when you borow money you pay back interest and that is what they use

Answer 10

i go with steve's answer