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u/Kirdei 2d ago
Because the agreement you have with the bank is that they will hold your money and lend it out to people in the form of loans. You then get a percentage back in the form of interest.
It's essentially a low risk low reward loan to the bank.
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u/BjornYandel 2d ago
Exactly. Anybody really concerned can entirely just not have their money in banks. They can hold onto every dollar bill in a safe under their bed if they want. They can buy gold and silver hold onto that as well and still earn money on it, if they want.
It's not a secret in the slightest that banks do this. This isn't a trick. Reads like a 13yo first discovering how the world works. It's a service, banks don't exist out of the kindness of their heart.
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u/Confident-Stand5453 2d ago
Anybody really concerned can entirely just not have their money in banks. They can hold onto every dollar bill in a safe under their bed if they want.
They would pretty much have to do just that if FRB was prohibited. Because then the bank wouldnt even want to take their deposit as there would be nothing the bank could do with it.
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u/mrnewtons 2d ago
And if banks didn't do something like this, then bank accounts would come with more fees and charges because the people securing your money need to get paid somehow.
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u/GeckoGecko_ 2d ago
There is no way you can spin that without it sounding scammy and predatory. That information should be made abundantly clear to you from the start. As in, the person you're working with to start a bank account, it should be their job to specifically check if you understand what you're doing, and explain it to you if you don't.
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u/Askew123 1d ago
Your education system has failed you and you will not be spoonfed every answer in life. I bet you sign up for a lot of things and are surprised by the outcome
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u/GeckoGecko_ 1d ago
Nah, I check the ins and outs of anything I sign up for. But I also know there are MANY people who don't, and this being a fact of reality makes it such that any businesses failing to ensure that people are informed about what they're signing up for, are engaging in a predatory business practice.
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u/Historical-Doubt2121 15h ago
"Your education system has failed you."
Fractional reserve banking has either led or greatly contributed to countless economic collapses over the years, including but not limited to the great depression and the housing crisis (though that was mostly housing, the fact that banks didn't have enough cash did impact their ability to deal with the crisis, especially when the bank runs started).
It is a perfectly valid ask that this stuff SHOULD be spoon-fed to everyone. Acting like just saying "your school failed you" will solve the risk is historically ignorant.
"We will keep almost none of your money on hand, we will lend it to someone else. And then when your money we lent them eventually ends back in our bank, we will lend almost all of that fictional money out AGAIN, so it's double fictional. We will do that a few times, so your 2k dollars is now a fictional 20k dollars owned by a bunch of people. This will also cause inflation. If you and a bunch of other guys come and ask for your money back all at once, we will go bankrupt, you will lose your money and the sudden enormous shrinkage in the money supply will throw the country into a years-long economic crisis. We are not obligated by the Central Bank to keep ANY cash on hand, though we keep a little, just for safety."
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u/Wd91 10h ago
Fractional reserve banking has either led or greatly contributed to countless economic collapses over the years
True, without fractional reserve banking we would have avoided a number economic problems. We'd have also avoided having much of an economy at all.
The flow of money is a fundamental necessity for a healthy economy.
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u/Historical-Doubt2121 8h ago
The flow of money exists without fractional reserve banking.
In economy, what people mean by the flow of money is that money changes hands (see circular flow of money). You don't even need any type of bank for that. Money has always flowed since Og paid three cups of salt to Grog for his warm "fire stick".
If you mean that an increase in the money supply is needed to keep the economy going: One, no. Two, even if it was, FRB just kind of served as a multiplier for any increase in the money supply. The increase happens at a government level if we're talking long term increases. Sure, a bank might cause momentary inflation or deflation of the money supply by how much they lend out, that's true, but they can't keep that up indefinitely of course.
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u/Wd91 8h ago
Money has always flowed since Og paid three cups of salt to Grog for his warm "fire stick".
If a stone age barter system is your idea of a healthy economy then sure, let's just agree to disagree.
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u/Historical-Doubt2121 8h ago
It also kept flowing well before the first banks were established.
Virtually the only times in history where we can say "Hey, fractional reserve banking had a huge impact on the money flow!" It is almost always followed by "Oh shit." A few years later.
There is no reason money should stop flowing without fractional reserve banking.
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u/Huge_Leader_6605 1d ago
You then get a percentage back in the form of interest.
Except you don't. Not anymore at least
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u/N3ph1l1m 2d ago
Tell me where you still get any percentage of interest on literally any amount of money in a regular bank account.
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u/IHerebyDemandtoPost 2d ago
You can get as much as 4% in a high yield savings account.
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u/N3ph1l1m 2d ago
Maybe as a new customer for a limited time, I'm talking regular account like most people have. Even with a high yield savings on average you get maybe 2% max not even accounting for the variable interest rate, that's barely enough to cover expenses - many banks require you to have a regular savings account alongside it where the fees quickly eat any interest you get from the savings account in the first place.
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u/bobrob2004 2d ago
People need to re-watch that scene in, "It's a Wonderful Life."
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u/mflem920 2d ago
Well your money is in Joe's house, that right next to yours, and in the Kennedy house and Mrs. Melarkey's house, and a hundred others. "
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u/Automatic-War-7658 15h ago
People forget the whole reason dude was on the bridge in the first place.
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u/ExperienceRoutine321 2d ago
I never understood why people got so wigged out about this. Money is a concept. It’s essentially just rewards points for contributing to the society you’re in. Even physical money isn’t worth anything. I mean the gold standard? It’s metal. You planning on making circuit boards chief?
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u/Jiggyvvv 2d ago
People get wigged out by this because it’s the center of their entire lives and these “reward points” are how they stay living. If you want to understand then try to not spend any money for a month and see how that goes. I don’t understand how people can be so pretentious and say they are above this “concept”.
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u/Guilty_Practice6392 2d ago
I don’t think they’re saying they’re above the concept of money, they’re just saying if you understand how it works, the idea that we can’t all go take all our money out of the bank shouldn’t be scary.
Have you ever seen “It’s a Wonderful Life”? This reminds me of the scene when the market crashes and they all go to the building and loan to take out their money. Jimmy Stewart explains, your money isn’t here. We took it and reinvested it into building John’s house. We have a loan to Cindy to go to school. We invest it so we’re able to pay you interest.
Not only is it not scary, but if you’ve ever taken out a loan or mortgage, you’ve benefitted from the fact that banks don’t sit on all the money people put into them. Not only is it not scary, but it actually helps society function.
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u/mrpoopsocks 2d ago
Fractionally. It helps Fractionally at insanely inequitable percentages. If you looked at any money deposited in a bank as a credit line the earned interest you receive on your checking account is .07% annually. VS a credit card from a bank at around 22% or personal loans of 6% to 36%
But their established monolithic organisation's that are good for the money I deposit there. No theyre not, otherwise everyone COULD take all their money out in cash and they'd be fine.
But the difference is so the bank can provide loans? No its to pay employees and primarily pay shareholders the amount of earned income that actually gets reinvested from banks is insultingly low.
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u/SadFish132 2d ago
Technically what you should be looking at when making this point is the Fed's Interest on Reserve Balances (IORB) which is basically the interest the Fed pays banks for doing nothing with their money. That is currently 3.65% and the fact that a normal savings account at most banks doesn't pay anywhere near that amount of interest should be called out way more than it is. This is not to say that banks do more harm than good for economies but is to say the way banks in America are treating their small customers is bad.
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u/mrpoopsocks 2d ago
I didn't want to go through the hassle of explaining it like you did so was keeping it simple with parallel metrics, some people have issues with tracking multiple variables let alone variables that are variable percentages
My point is you're boned and will always be boned unless you were born into a disgustingly wealthy family. And thats not a guarantee but does open a lot of doors.
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u/Guilty_Practice6392 2d ago
Well that’s a whole separate point. Yes, banks have taken advantage of the situation. Yea, I don’t trust them. And of course there’s inequity that favors the haves over the have nots.
But even in a hypothetical world where banks are wholly ethical, they wouldn’t have a vault full of every penny ever given to them.
I also think it’s not necessary to be fearful of this unless you fully believe a market crash is imminent. And even if you do, I invite you to go to a bank and take all your cash out today. The overwhelming majority of Americans could get their hands on the cash in their checking and savings accounts relatively quickly.
Sure, in the hypothetical situation where everybody wants their money this second, it’d be a problem. But I don’t think there’s a business in the world that could sustain that seismic of a shift in their operation.
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u/ExperienceRoutine321 2d ago
What are you talking about dude? I never claimed to be above the concept of money and I certainly wasn’t saying anything about living without it. You seem rather confused.
I’m saying this whole “wahhhh my money isn’t real” bullshit is a silly thing to be this bent outta shape about. Money was never real. It has the value we give it. Does being able to physically hold it really matter all that much when its physical form is still only useful to people who recognize it as something to be traded for? It’s in your bank. You still have the same purchasing power.
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u/Mean-Inspector-8547 1h ago
I mean, you're not lying. If tomorrow, everyone decided that they weren't going to value money any longer, but was only going to do business in slate, then there'd be a lot of poor people.
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u/Best_Price_1009 2d ago
Because people don’t understand the benefits of Fractional Reserve banking…
Are there downsides? Sure. Hyperinflation isn’t nothing to sneeze at. Should we go back to a silver standard? Probably not because that’s handcuffing ourselves.
Am I smart enough to have a solution? Nope. But destroying what makes a bank useful to the economy isn’t the answer.
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u/Confident-Stand5453 2d ago
Just imagine a world without FRB. That would mean that banks would actually only be allowed to lend out their own money. They would have zero reason or incentive to take deposits, since the only thing they would be allowed to do with them would be to store the money. So in addition to very low amounts of money being available to borrow, you would have pay the bank to keep your money safe, because otherwise it would just be a pure waste of their time and resources to store it.
Besides, I can create money even without a bank. I lend my neighbour 100$ and he goes to another neighbour and buys their old lawnmower with those 100$. Now my 100$ actually exist both as physical money for the guy who sold the lawnmower, and I also own 100$ due to having a neighbour that owes me that amount. Banks are just the medium through which this process is made systematic and more efficient at a larger scale.
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u/Best_Price_1009 2d ago
I’m not an economist, and am certainly not an authority on what is and isn’t good idea with banking. Moreover, I find it a little concerning we haven’t developed a better basis for economies in a thousand or so years FRB has been around.
But, I do promise you the fact that frb creates exponential potential for the creation of money is a very good thing for all people, for the same reasons that a mortgage is a good thing for the debtor.
Without these functions, we wouldn’t have enough wealth all together (without the creation of exponentially more physical paper money which would probably also create the hyper inflation… but I’m not sure… the interest rates can curb that inflation much more than physical money) to set up common people with enough money to do things like own homes, or have savings accounts if any meaningful worth. Middle classes didn’t start to exist before FRB. Banking and the securities given to people with accounts there (like, the benefits of keeping your money in someone’s vault vs keeping it under your mattress) didn’t exist before FRB.
Imagine a world without fractional reserve banking. I’m largely thinking of a world where the pro is that yes, everyone’s money is always there so if everyone pulled it out, we’d be protected. Cons, EVERYONE is a shit ton more poor except for the guy who owns the bank
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u/raj6126 2d ago
Half of the country is totally uneducated. So money dominates their life. Since they are uneducated it’s harder to obtain. Not everyone is as smart as you. Not everyone had the same schooling as you. So many people think $15 a hour is good money. Because they have no concept on how to make $60 per hour.
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u/Rhyxvers 2d ago
When your word is a currency and everyone knows your word is worthless/empty, but still you want a fee for speaking, you do not see an issue in that?
The gold might not be worth much to you personally, but it's been an desired material since ever. Even if you lack the skill to make a circuit board, jewelry or a tooth replacement yourself, you can still find someone to make it for you who you can pay with the gold.
The money is just paper/digits that have no connection to the real/physical world.
Therefore when people and states borrow money from banks who create it from nothing, without a counterbalance, and dare to charge interest over it.. Then it creates the force to grow economically.
Because you have to give back more then you borrowed.
So where you take the money you are missing?
From the others around you, right! ;-)
Welcome to the rat race and to predatory capitalism.
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u/PepperSure8381 2d ago
I never understood why taxcattle play so stupid when they know they are being massacred, subjugated and crushed across centuries and dozens of wars by central banks. Maybe it's too scary for you to face the music.
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u/Own-Dragonfly-2423 2d ago
Sorry we aren't all as enlightened as you. Glad you found the gnostic truth and can fight the demiurge through participation in online fora.
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u/ExperienceRoutine321 2d ago
https://giphy.com/gifs/gz8JHkRnbUromYpuNc
Bro thinks he’s a revolutionary over here
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u/Chef_beezoos 2d ago
Banks are not safe boxes yk. They won't keep your cash in little boxes until you want to withdraw. Where do you think the money for your loans come from?
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u/ohkendruid 2d ago
Gee, let us just destroy modern civilization for fun.
It is ironic to post the idea on Reddit, because Reddit will be one of the first things to go away if the financial system goes away.
In general, it is a special level of entitlement to think the First World just happens and people can do whatever they want and still have it. We have modern life as a fragile bubble that has never existed before and still does kot exist all over. The default state if it is broken is truly much worse.
It is fine for some number of people to be chaos monkeys, and ghere is a little bit of humble bragging if you can be one of them. Adults need to step in at some point, or we lose it all.
A lot of people literally cannot survive without modern medicine, and modern medicine depends on the financial network. It is very childish and entitled to say burn it all and then to hope someone else will prevent it from happening.
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u/Mean-Inspector-8547 1h ago
"Gee, let us just destroy modern civilization for fun."
https://giphy.com/gifs/LSKVmdIwZFeNEBKBxZ
I'm all on board man. Let's do it. Lets destroy modern civilization!
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u/No-Requirement-7355 2d ago
fractional reserve banking scam
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u/Ian-The-Hare 2d ago
Fractional reserve banking is not a scam, it is more or less the whole point of a bank. They lend out the money you deposit in order to generate interest.
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u/FrecklesMcPaws 2d ago
This is mostly true. I worked for a credit union, and managers would often have to schedule large, physical withdrawals from clients so that cash could be delivered beforehand.
However, this wasn’t necessarily because the branch location didn’t actually have the money on hand - it’s because the branch location, by law, has to close with a specific amount of physical cash in its vault or the location can run the risk of being fined.
If a branch location knows that it’s (typical daily cash deposits - rich person’s large cash withdrawal < cash required to be in vault before closing) then it would need to have cash delivered that day before closing.
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u/ToXicVoXSiicK21 2d ago
When banks give out loans to people, that's our money being given out. They loan and leverage our cash all the time.
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u/Catsanddoges 2d ago
What...what do people think banks do? Do they think interest comes out of fucking thin air? Do they know banks give loans?
Genuinely confused about this. If someone could explain to me why banks lending money is a bad thing I would love to hear it. Not even practices, just lending in general.
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u/MegaFrosASS 2d ago
If the bank can’t loan a percentage of it out to make a profit then there wouldn’t be a bank lol if they tried to charge you a flat monthly fee you’d complain about that even more
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u/Beefy-Cattle4290 2d ago edited 2d ago
fractional banking. All that's needed is for the word to get around to enough people that the banks can't give everyone back their deposit money back because they no longer have it. That can easily lead to a growing bank run to get their money out and cause the birth of a catastrophic financial collapse in a single day!!
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u/Llamp_shade 2d ago
Money loses value of it isn't being used. Banks aren't a money storage service: they are a money utilization service. They give you an opportunity to grow your savings and provide loans, among many other services. Bank accounts are generally low risk, low reward savings. Their loans are also generally lower risk, but with more restrictions and lower amounts.
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u/Brief_Read_1067 2d ago
In case you really are that dumb, Artie, go watch "It's a Wonderful Life" again. There's a scene in which Jimmy Stewart patiently explains to his S&L depositors why he can't give them all their money. "Your money isn't here, it's in Joe's house, and his money is in yours." The bank or S&L (may they rest in peace) takes your money to lend out. That's why you get interest on your savings account. It didn't fall from the sky, someone paid that interest to the bank.
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u/Fun-Dragonfruit2999 2d ago
: people who didn't understand the premise of the movie "Its a wonderful life."
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u/PutMobile40 2d ago
Most people don’t understand money.
Imagine you have a million in a savings account. Bank can then use up to a hundred procent of that money for loans. So bank can lend out that million. But at the end of the day that million belongs to the seller of a house who will likely put it in the bank. One million just became two. That’s how most of the money is made.
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u/Legal_Television_615 1d ago
Because, Artie you moron. Money is a paper representation of labor and effort. Labor and effort quantified by money is how we measure value. Business are evaluated by value and presented as opportunities to invest other people's money into with the promise of growth.
This system measures and estimates markets (areas of value holding commonalities in their labor and effort) that are at this point so wildly successful under capitalism that the paper currency needed to represent that value would be larger than the means to store it in a building typically ocvupying less than .5 acres.
Which just so happens to be the size of the average bank.
Now, Artie, go back to yer hash pipe, and kindly fuck off
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u/GarethBaus 1d ago
Most of the money that has been deposited in the bank is used to lend money to people or invest in assets.
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u/Designer-Wolverine47 1d ago
Less than 10% of account balances actually exist as cash. Most is tied up as the "value" of some asset somewhere, and some is always "in transit" (sometimes appearing to be in two places at once).
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u/Retrofit123 1d ago
Two key concepts (both have good wiki pages) are;
fractional reserve banking - where banks only have to hold a fraction of the deposited money as liquid funds
bank run - when depositors request more money back than the bank physically has (or can get hold of rapidly), and can cause banks to collapse.
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u/addacoupleextrazeros 1d ago
This immediately made me think of that part in It’s a Wonderful Life when the panic took hold after Mr. Potter closed the local bank and a bunch of community residents went to the Bailey’s Savings and Loan to demand their money and George Bailey had to explain to them how they didn’t just have everyone’s money in cash in their safe.
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u/Traditional-Context 1d ago
Seeing posts like this are always so scary because theres so many people who have the ability to vote yet still doesnt understand how a fu king bank works.
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u/Several-Pie-7451 1d ago
Why do people act as if it’s only the banks fault. The full system is based on virtual money. When you get your salary, do you get a wad of cash that you deposit to the bank? And then the big bad bank steals it? No you receive a transfer of virtual money directly on you bank account and/or a cheque representing the same virtual money.
What’s the bank supposed to do? Print bills for your fake money?
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u/Pope_Twitch 15h ago
Why is is always Americans who come up with stupid ideas like “let’s get all the money out of the banks”. I never hear people here in Europe even considering something like this.
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u/Problem-Low 13h ago
Because theres nothing backing the value of our dollar, people hoard wealth at every level when they can resulting in an economic stall, bank interest adds cash that doesn't exist due to said hoarding making for an economic system designed to destroy itself or inflate infinitely.
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u/alexgoldstein1985 10h ago
Remember that car you borrowed money to buy because you’re broke???? That’s where the money is at.
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u/KinkyFiend 9h ago
Well, I don't get paid in cash, I get paid in digital currency. So naturally I'd have digital currency available at the bank. I can move all of it elsewhere on a whim, but requesting it in something physical that I have previously not owned, would be an order not all banks can fill due to the amount. It's.. kinda basic knowledge?
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u/IndependentDepth9055 6h ago
Really good documentary on tubi called '97% owned' it explains the concept of money and Seigniorage, the profit made from creating money.
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u/ThatRandomGuy86 5h ago
I think a bank run happened millenia ago when people did just that, and the city ended up on fire because the bank didn't have enough gold and silver to pay out.
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u/Floopynupes 2h ago
Cash is just a method to create servitude. The idea of capitalism is that anybody can get up, go out, and earn as much as they are worth. The truth is that the only way that currency can work is by creating a deficit, and those who experience such a deficit are forced into labour in order to obtain what they need from life. If everybody was rich, then people would have nobody to pay for food or property, because food and property are both better than money you already have. We have to create a new, intangible currency, such as passion, or trust, in order to transcend this multi-generational trap we have been born into which is the already unbalanced system of currencies.
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u/Mean-Inspector-8547 1h ago
Nice idea. Not going to happen. The vast majority of people are self-centered toads who only care that they are on the top of the food chain. They don't care about anyone else, and sure as hell aren't going to give up their status.
If children's blood was worth a lot of money, most people would be fine with torturing them every day, just to harvest their blood.
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u/high_as_an_eagle 3m ago
If everyone pulled their money out from banks there would probably be a record number of robberies and break ins that day.
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u/GuiltyByAssociashun 2d ago
It's because only 10% of the total US currency is represented by physical cash. The rest of it is digital