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Just unbelievable

Richard Murphy says:
February 19 2021 at 8:56 am
Banking makes loans

That does not require deposits

If this were true then no bank could go bust as a result of a run on the deposit base. Banks can – and do – go bust as a result of a run on the deposit base. Therefore the statement is untrue.

4 thoughts on “Just unbelievable”

  1. Banks don’t need.deposits to agree a line of credit, but the day they actually advance funds they need to accept the same amount in external funds (deposits, bond or share issuance) to balance the books

  2. Well strictly the bank could borrow to make its loans (either from the shareholders, explicitly from the BOE/market, or implicitly by crediting virtual money and hoping nobody catches up with them too quickly).

    That is of course why there is regulation on capital requirements ( which is generally achieved by using deposits. But they don’t have to have 100% coverage so are making some loans without direct corresponding deposits.

    The question is then probably whether an institution which makes loans without taking deposits is a bank, or something different such as an investment firm, venture capitalist or loan shark.

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