By what legal authority can the banks demand repayment?

Morgage_Confused

ahh...... but what holds up the turtles.

_Andy_ wrote: »

I like turtles.

Southend1

krisdorey wrote: »

I can assure you it does and there is, in fact for liquidity ratio purposes banks have to maintain a higher percentage on their balance sheet of deposits compared to loans.

Heres some reading

http://www.google.co.uk/url?sa=t&rct=j&q=basel%203%20liquidty%20ratio&source=web&cd=3&cad=rja&ved=0CFgQFjAC&url=http%3A%2F%2Fwww.iif.com%2Fdownload.php%3Fid%3DksIsGMopBoE%3D&ei=WeveULerNK2W0QWrw4CgBA&usg=AFQjCNHMmMokyotrE_GkUfXcyUp-ZC_fQw

Technically true, but in reality the deposits come from debt created by the banks so it's actually an illusion. This video explains:

http://youtu.be/M3KjyhNX5E0

It's actually a 5 part video but the link is to the 2nd part which I think illustrates the point neatly, though I'm not 100% sure it makes sense unless you also watch the first part: http://youtu.be/KyDU4X8GSmE

spgsc531

ILW wrote: »

Because you signed a contract saying how much you would repay. What the bank paid is of no consequence.

that makes sense

mrginge

Mike63 wrote: »

An example.

1) I deposit 1000 of my hard earned cash in a bank. (Bank sets aside 150 to cover their reserve requirement.)
Bank Assets: 1000 cash reserves; Bank liabilities: 1000 debt to me.
2) You ask the bank for a loan of 500 which the bank provides as electronic money.
Bank Assets: 1000 cash reserves + 500 loan; Bank liabilities: 1000 debt to me.
3) You repay the loan.
Bank Assets: 1500 cash reserves; Bank liabilities: 1000 debt to me.
4) I withdraw my deposit.
Bank Assets: 500 cash reserves.

How did the bank end up with the extra 500? They made a computer entry into your account, then you worked at a job to get paid to clear the debt.

Surely no-one can be this stupid.

marlasinger

opinions4u wrote: »

Except they can't and don't lend out £666. You're in fantasy land, believing there is some great conspiracy when there isn't.

Depositors lend their money to the bank in return for interest.

The bank then lend it on at a higher rate.

There is no magic fairy dust that multiplies this money in the way you suggest.

There is a money multiplier which is how banks can create credit/money, by keeping their cash reserves as less than 100%

Say using example above, someone deposits £100. The banks only have to keep 15% in cash. So they can lend out the remaining cash of £85. Someone takes that £85, buys £85 worth of goods so give that money to a business. That business deposits £85 at the same bank. Banks balance of deposits is now £185. They only need to keep 15%, so can lend out £157.25, and so on and so forth.

So total deposits = Initial Cash Deposit/Cash Ratio (ie. 0.15), which is where Mike gets £666 from.

Can't get my head around the rest of his argument, but I'm only on my first cup of coffee of the day (and it's decaf!).

marlasinger

Mike63 wrote: »

1) I deposit 1000 of my hard earned cash in a bank. (Bank sets aside 150 to cover their reserve requirement.)
Bank Assets: 1000 cash reserves; Bank liabilities: 1000 debt to me.
2) You ask the bank for a loan of 500 which the bank provides as electronic money.
Bank Assets: 1000 cash reserves + 500 loan; Bank liabilities: 1000 debt to me.

For Step 2:
Bank Assets: Cash Reserves = 500, Loan to Customer = 500
Bank Liability: Deposit from Customers = 1000

Mike63 wrote: »

How did the bank end up with the extra 500? They made a computer entry into your account, then you worked at a job to get paid to clear the debt.

They don't have an extra £500. They have simply moved £500 from cash to a customer deposit. So cash reserves reduced by £500, Customer deposit (also asset) increased by £500.

Mike63

I was attemting to explain how the banks use their capital reseves to increase the money supply. That's why I specifically said an electronic loan. When they made that loan they still had the cash in the vault. The person who received the loan and didn't stuff it into the matress, put it back into the banking system, thus increased the money supply by 500. So I was wrong for not including the electronic debit that resulted in the electronic loan. However I was right about the multiplier on the cash loan and that the banks are 'printing' electronic money. So the mechanism for the bank to make it's coin is to take my 1000, turn it into 1000/15% = 6666 of loans, then make the interest differential on that, which I think comfortably covers the earlier 500 example. Different mechanism, same result.

The incentive is still there for these private companies to create as much debt as possible, (and devalue your paypacket in the process), using a technique that is specifically prohibited by Parliament should it have been paper not electronic money.


I'd also like to point out that I have been perfectly polite, and for example not called anyone stupid or ridiculous for not following the money multiplier '666' point.

Thrugelmir

Mike63 wrote: »

The incentive is still there for these private companies to create as much debt as possible,

With the tighter regulation being introduced. This is no longer the case. Banking is heading backwards to where it was a couple of decades ago.

Ultimately money lent has to be done so profitability. So does not equate that "more" is better.

Southend1

Thrugelmir wrote: »

With the tighter regulation being introduced. This is no longer the case. Banking is heading backwards to where it was a couple of decades ago.

Ultimately money lent has to be done so profitability. So does not equate that "more" is better.

Surely more is better because less will cause the banking system to collapse?

However keeping the future increase in credit to a minimum/stopping the exponential money multiplier effect may be better still as this will prevent credit booms in future?

ILW

Mike63 wrote: »

I was attemting to explain how the banks use their capital reseves to increase the money supply. That's why I specifically said an electronic loan. When they made that loan they still had the cash in the vault. The person who received the loan and didn't stuff it into the matress, put it back into the banking system, thus increased the money supply by 500. So I was wrong for not including the electronic debit that resulted in the electronic loan. However I was right about the multiplier on the cash loan and that the banks are 'printing' electronic money. So the mechanism for the bank to make it's coin is to take my 1000, turn it into 1000/15% = 6666 of loans, then make the interest differential on that, which I think comfortably covers the earlier 500 example. Different mechanism, same result.

The incentive is still there for these private companies to create as much debt as possible, (and devalue your paypacket in the process), using a technique that is specifically prohibited by Parliament should it have been paper not electronic money.


I'd also like to point out that I have been perfectly polite, and for example not called anyone stupid or ridiculous for not following the money multiplier '666' point.

So why head up the post with the question "What authority have the banks to demand repayment of loans" which is a totally different subject?