>>>Question: Where does the interest paid by
commercial banks to their investment depositors come
from? <<<
Their own pockets, their profit-loss account. It is
paid from the bank account they keep with themselves.
--
What incentive is there for a bank to direct part of
its profits in this way? That is, why bother to offer
an investment service to its customers if the liability
is not on-loaned, re-invested or otherwise used to
generate more profit? Is it simply a case of being
legally obliged to offer an investment service (ie,
not simply a depository service) as part of its charter?
Must admit to being unfamiliar with the various banking
acts.
Related to this question, I suspect, are a whole lot of
issues relating to the elimination of statutory reserves,
the reduced role of reserves in relation to money
creation in most countries, and also the imposition of
a capital adequacy framework.
>>>Please explain! Most of the nation's money supply
is credit existing in the form of bank deposits. And
bank loans to individuals usually entail the creation
by the lending banks of new deposits within their
borrowers' accounts, each of which is normally set up
by a lending bank at the time of making a loan. In
such cases, how does money creation involve financial
institutions other than the lending bank? <<<
Simply because an individual bank does not create
credit and cannot create credit unless it is a
monopoly, which the totality of the financial sector
is--and then only in cooperation with the financial
sectors' customers.
Are you saying that money has not (yet) been created at
the point where an individual bank has notified a borrower
that it has made a deposit in his/her account with that bank
following a successful loan transaction? If so, at what
stage and in which circumstances would you say that
money has been created?
It is by its nature a monopoly even though individual
banks may be individually owned--because their
product must be fungible and acceptable at every
other bank for deposit. That means that every
individual bank must conform to the same rules and
standards of every other bank, or it will not stay in
business. If it charges too much for loans, business
will be driven to other banks. If it charges too
little, its capital will become depleted. It is by
its nature centralized regardless of the putative
ownership management of its individual components.
Agree with this.
Douglas's theorem in this regard was this: The flow
of deposits equals the flow of loans. The flow that
he was referring to was the composite net flow of the
system as a whole into or out of the pool of deposits
in the aggregate.
I realize this is not a full or complete answer to
your question, but we are early into our discussion.
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