Why Banking Institutions Never Require Your Hard Earned Money in order to make Loans

Why Banking Institutions Never Require Your Hard Earned Money in order to make Loans

Conventional introductory textbooks that are economic treat banking institutions as economic intermediaries, the part of that is for connecting borrowers with savers, facilitating their interactions by acting as credible middlemen. People who make a living above their immediate usage requirements can deposit their unused earnings in a bank that is reputable therefore making a reservoir of funds from where the financial institution can draw from so that you can loan down to those whoever incomes fall below their immediate usage requirements.

While this whole story assumes that banking institutions require your cash so as to make loans, it is in reality somewhat misleading. Continue reading “Why Banking Institutions Never Require Your Hard Earned Money in order to make Loans”