Sunday Mail discovers how banks work
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Why aren’t they printing money ?
https://www.wsws.org/en/articles/2025/06/17/ougu-j17.html
Gold now number two reserve asset in international financial system
A report by the European Central Bank (ECB) issued last week pointed to the growing lack of international confidence in the role of the US dollar as the global reserve currency.
According to the ECB, gold accounted for 20 percent of the global reserves held by central banks, outstripping the euro at 16 percent and coming second to the dollar at 46 percent.
More on how the central bank in Britain gets more money into circulation from David Smith, Economics Editor of the Sunday Times in his column into today’s Times.
“Commercial banks, overwhelmingly the high street banks we all use, always retain some reserves at the Bank [of England]. Under the regulatory environment in which they operate, they need to hold high-quality liquid assets to draw on when they need liquidity, and reserves at the Bank are perhaps the easiest form of such assets. Those normal reserves were swelled by quantitative easing (QE). Under what was colloquially known as ‘printing money’, commercial banks’ reserves were created at the Bank. Andrew Bailey, its governor, describes them as ‘ultimate form of money’”.
What happened was that the Bank bought government bonds off the banks and paid for them by increasing a bank’s reserves with it. That solves Link’s mystery of how new electronic money gets into circulation. It is created by the central bank and distributed via the commercial banks.
Murabaha or cost plus selling: This is the most common product in asset portfolios and applies only to commodity purchase. Instead of taking out an interest loan to buy something, the customer asks the bank to purchase an item and sell to him or her at a higher price on instalment. The bank’s profit is determined beforehand and the selling price cannot be increased once the contract is signed. In case of late or default payment, different options are available including a third-party guarantee, collateral guarantees on the client’s belongings or a penalty fee to be paid to an Islamic charity since it can’t enter the bank’s revenues.
Actually the deleted link could have been posted here too as the practices of Islamic banks are also relevant for the discussion here.
“Murabaha or cost plus selling: This is the most common product in asset portfolios and applies only to commodity purchase. Instead of taking out an interest loan to buy something, the customer asks the bank to purchase an item and sell to him or her at a higher price on instalment.
Ijara or leasing: Instead of issuing a loan for a customer to buy a product like car, the bank buys the product and then leases it to the customer. The customer acquires the item at the end of the lease contract.”
These practices of Islamic banks raise an awkward question for Thin-airists: where does the bank get the money from to buy what it re-sells or leases to customers? Does it simply decide to create it from nothing or must it have the money already? The answer is obvious.
It is also poses a problem for the conventional theory that banks create money when they make a loan: does an Islamic bank do so when it buys something for a customer since no extra deposits are created?
Here’s another demonstration that, when it comes down to it, bankers themselves and financial journalists when describing things don’t really think that banks are able to create credit out of thin air.
There was an article in yesterday’s Times which, in passing, notes as a matter of established fact that:
“Usually savings provide the money for businesses to borrow, invest and grow. However, despite the increase in
savings, UK investment remains dismally low.”No suggestion that money for businesses to borrow to invest could come from anywhere else (even though the article goes on to mix up “investment” by businesses with people “investing” their savings on the stock exchange rather than holding them in interest-yielding bank accounts).
I know it’s a bit like kicking an opponent when they’re down but here’s another everyday routine acceptance that banks need deposits to function.
It’s from today’s Times and is about a government plan to reduce “cash ISAs” (savings with banks, etc whose interest is tax-free) to encourage savers to instead gamble on the stock exchange by getting tax-free dividends.
According to the news item, building societies (which are banks specialising in lending money to people to buy a house), “which rely on cash ISAs as an important source of funding, have also warned restrictions could affect lending”.
If, as banks, they could lend without funding how come that this could affect their lending?
Banks, capitalists, bankers, financial school, capitalist governments, banking schools, shark loans lenders, pawn shops, all contradict the false conceptions of the money crankers. Their conceptions have been debunked several times, they can write thousands of books, and they are all wrongs. Several of them call themselves Marxists and Karl Marx has contradicted them too. They should rest their case and quit
And banks continue going belly up and they have not created any money to solve their problems
https://www.fdic.gov/bank-failures/failed-bank-list?page=2
This is a list of all the bank that have in the US since 2000. Banks did not create money to solve their financial crisis, they reached for the protection of the Federal Reserve Bank and the FDIC
I came across this quite useful article that looks at the different theories of banking in a historical context
Yes, that’s quite a good article setting out the various theories about the nature of banks and banking and very useful as a background to what the issues are. Some of the authors they refer to challenge the view that banks are essentially different from other lenders such as finance companies and pawnbrokers. Good point: if banks can create money from thin air, why can’t these other lenders? But then the theory that a single bank can create credit out of thin air has been thoroughly debunked, both in theory and in practice.
I read the article provided by Robbo203 and it is an interesting review of theories but did you note it doesnt try to come to conclusino about the 3 theories, it basically just says they exists. I dont want to go over the whole discusion again but i would like to point out certain things. ALB says i support the intermediary theory but i would say ALB supports the magic money theory. Why because he says that all money is fiat money whether notes, cash or electronic and that central banks/governments create all money including the electronic. My basic point in terms of this argument is that it makes no difference whether electronic money is created by a government, central banks or by commercial banks because if it is electronic money it is all created by computer whether you want to call it money made out of thin air or by keyboard or magic money. There is no difference. One of the problems of the article mentioned and the SPGB booklet on magic money is that they do not address the issue of what electronic money and the differences it makes to understanding what money is historically. A
Anyway to conclude I thought i would show you this video clip of Greenspan, a recent head of the US Federal Reserve talking about issuing money
Another example to record of everyday matter-of-fact acceptance by practitioners and journalists that banks can’t make loans without deposits. This time an article in today’s Times on non-bank financial institutions that raise money to lend to businesses to buy out another business known as “private credit”.
“Many argue that central banks are unnecessarily alarmed. Private credit funds may better because they provide semi -permanent capital, unlike banks which are dependent on their short-term deposits staying steady.
… Ludovic Phalippou, professor of financial economics at Saïd Business School, University of Oxford, … told a House of Lords committee last month: ‘They are, in fact a very natural type of lender -— pools of committed capital making long-term loans. Structurally, this is far more stable than deposit-based banking’.”Nobody dares suggest of course that private credit institutions conjure up the capital that they lend out of thin air.
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