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BFCSA: 2014 and learning from PUNCH about dirty banking practices: PUNCH magazine published 3 April 1957

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Punch magazine article published 3 April 1957

The cartoon...."the bank teller is asking do you wish to withdraw money?"  The customer is saying: "No I just want to count it to make sure its still there."

 QWhat are banks for?

ATo make money

QFor the customer?

AFor the banks

QWhy doesn’t bank advertising mention this?

AIt would not be in good taste but it is mentioned by implication in references to reserves of $249,000 or thereabouts, that is money they have made

QOut of customers?

AI suppose so

QThey also mention assets – have they made that too?

ANot exactly but that is the money they use to make money

QI see and they keep it in a safe somewhere?

ANot at all they lend it to customers

QThen they haven’t got it?

ANo

QThen how is it Assets?

AThey maintain it would be if they got it back

QBut they must have some money in a safe somewhere?

AYes usually $500,000 or thereabouts.  This is called Liabilities

QBut if they’ve got it how they be liable for it?’

ABecause it isn’t theirs

QThen why do they have it?

AIt has been lent to them by customers

QYou mean customers lend banks money?

AIn  effect.  They put money into their accounts so it is really lent to the bank

QAnd what do banks do with it?

ALend it to other customers

QBut you said that money they lent to other people was Assets?

AYes

QThen Assets and Liabilities must be the same thing?

AYou can’t really say that

QBut you’ve  just said it.  If I put $100 into my account the bank is liable to have to pay it back so it’s liabilities.  But they go and lend it to someone else and he is liable to have to pay it back so it’s assets.  It’s the same $100 isn’t it?

AYes but……

QThen it cancels out.  It means doesn’t it that banks haven’t really any money at all?

ATheoretically

QNever mind theoretically.  And if they haven’t got any money where do they get their Reserves of $249,000 or thereabouts?

AI told you.  That is the money they have made

QHow?

AWell when they lend your $100 to someone they charge him interest

QHow much?

AIt depends on the bank rate.  Say 5 and a half percent.  That’s their profit

QWhy is it not my profit?  Isn’t it my money?

AIt’s the theory of banking practice that…..

 QWhen I lend them my $100 why don’t I charge them interest?

AYou do

QYou don’t say how much?

AIt depends on the bank rate.  Say half a per cent

QGrasping of me, rather?

ABut that’s only if you’re not going to draw the money out again

QBut of course I’m going to draw it out again.  If I hadn’t wanted to draw it out again I could have buried it in the garden couldn’t I?

AThey wouldn’t like you to draw it out again

QWhy not?  I keep it there you say it’s a liability.  Wouldn’t they be glad if I reduced their liabilities by removing it?

ANo because if you remove it they can’t lend it to anyone else

QBut if I wanted to remove it they’d have to let me?

ACertainly

QBut suppose they have already lent it to another customer?

AThen they’ll let you have someone else’s money

QBut suppose he wants his too….and they let me have it?

AYou are being purposely obtuse

QI think I’m being acute.  What if everyone wanted their money at once?

AIt’s the theory of banking practice that they never would

QSo what banks bank on is not having to meet their commitments?

AI wouldn’t say that

QNaturally.  Well if there’s nothing else you think you can tell me……

AQuite so.  Now you can go off and open a banking account

QJust one last question

AOf course

Q Wouldn’t I do better to go off and open up a bank?

 

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