How is banking conducted compared to 20th century practices? What are the various philosophies about money and

Question

plez try to answer all of these if u cant plez try to answer atleast one

Answer 1

Early 20th century banking was based on making loans based on your deposits.


Now, banks tend to make loans and then turn around and borrow at lower interest rates from the Fed (or bundle their loans and sell them to outside investors as "low risk") and their profit is on that spread.

There are also a certain amount of zero-sum derivative instruments that spread around the risk....although derivatives do not lower aggregate risk.

In other words, in the "Olden Days", banks had real deposits backing their loans to some extend....nowadays the existance of the Fed creates extra liquidity so banks tend not to be as strict in their loan making (existance of subprime loans, credit cards, etc).

Answer 2

Banks use to earn most of their money from the interest rate spread on loans, and only wanted accounts with large balances to provide a source of funds. When they made loans they held them so they worried about the credit worthiness of borrowers.

Now they make much of their money from fees, are computerized so the are willing to handle small accounts, and most banks sell off the loans they write. There has been a movement toward consolidation so community banks are disappearing.

Answer 3

Today, governments create money out of thin air.

Prior to the 20th Century, money was backed by valuable commodities. Gold has been the traditional money in Europe and in the Islamic World.

There are really just 2 different ideas on money and banking. There is the idea that government should create money and the idea that it should be backed by something of value and not created by government.