Reply To: Another Bank in Crisis?
If a bank’s business model was to create money out of thin air and then lend it at interest, this being their income, then banks would be a more profitable line of business than other capitalist businesses. Only they are not. They don’t make more profits per capital invested than do other capitalist enterprises.
In fact, in some respects they are more risky since, by borrowing short-term and lending long-term, they are open to being put in financial difficulty if too many of those they have borrowed money from (their depositors) withdraw it at the same time.
This is why one investor, writing in the Financial Times (25 March), headed his article “Why I will never invest in bank shares”. Other investors, however, are not so timid, treating banks as just another profit-seeking business.
Incidentally, in his article, the author (Terry Smith), gives a breakdown of the assets and liabilities of the NatWest Group. It shows deposits of £470,759 million and loans of only £373,479 million. If banks really could create from thin air money to lend, you’d expect it to be the other way round — loans to be more than deposits. But they’re not.
Currency cranks richly deserve their name.