Banks don’t lend money, They’re in the business of purchasing securities. That’s it! See this video below that explains how it works.
Banks are thought of as deposit-taking institutions that lend money. the first empirical studies to prove that [banks create money out of thin air].
Banks are thought of as deposit-taking institutions that lend money. The legal reality is banks don’t take deposits and banks don’t lend ANY REAL money.
So what is a bank deposit? A deposit is not actually a deposit. It’s not a bailment. And it’s not held in custody.
At law, the word deposit is meaningless. The law courts and various judgements have made it very clear if you give your money to a bank even though it’s called a deposit, this money is simply a loan to the bank. So there is no such thing as deposit. It’s a loan at a bank.
So banks borrow money from the public. That much we’ve established.
What about money lending? Surely they’re lending money. No, they don’t. Banks don’t lend money. Banks again, at law, it’s very clear. They’re in the business of purchasing securities. That’s it.
That is how the banks create the money supply. The money supply consists to 97 percent of bank deposits and these are created out of nothing by banks when they lend. Because they invent fictitious customer deposits.
Why? They simply restate, slightly incorrectly in accounting terms, what is an accounts payable liability arising from the loan contract having purchased your promissory note as a customer deposit. But nobody has deposited any money.
Banking is not money lending; to lend money, a money lender must have money. The fundamental banking activity is accepting, that is, guaranteeing that some party is creditworthy. Crazy as it sounds, banks don’t lend money at all.