Err, no

At its peak in 2008, the funding gap of the British banking system, the difference between loans and deposits, stood at £720bn.

No, really, no.

The difference between loans and deposits was £0.00.

As it always is at the end of the business day when the banks balance their books.

There can be, as indeed there was and is, a difference between loans made by the bank and deposits by the bank\’s retail customers. There can be a difference between those loans and the deposits made by retail and wholesale customers.

Which is what we have things like the interbank market, even central banks, to cover.

But the difference between total loans and total deposits is always £0.00.

3 comments on “Err, no

  1. “The difference between loans and deposits was £0.00.”

    Shurely some mistake? assets – liabilities = equity

    There must have been some equity in the banking system, even in 2008.

  2. Across the financial system as a whole, debt and savings are equal, of course. The funding gap that the writer refers to is the difference between retail deposits and retail lending, I think – which just before the financial crash did show a considerable imbalance. That imbalance was covered mainly by interbank borrowing and bond issuance, as there really wasn’t much equity in the likes of Northern Rock. The problem is the definition of deposits, which is too narrow in the minds of the many people who think there is OVERALL more debt than savings.

    I wrote about this common fallacy in this post http://coppolacomment.blogspot.com/2011/11/other-side-of-debt.html

    I am still getting loads of flak from people who not only don’t understand this but for various reasons think I’m wrong. Some of them also think I’m evil lizard banker and a Tory troll who is defending her bloated capitalist finance friends, but I guess that’s a different issue!

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