Quote ="sally cinnamon"Exactly.
These days a lot of people see banking as something that is inherently evil but the banking sector exists to perform a very useful and important function in society. There are always people wanting to save (for pensions, household savings etc) and always people wanting to borrow (businesses looking to start up/expand, people looking to get mortgages for houses). The most efficient way for savers to save is not to stick their wealth under their mattress but to lend it to people wanting to borrow now, the idea being that if the borrowers are getting some productive use out of the access to those funds now, they can repay the savers with interest so the savers gain. The banking sector exists to bring those two aims together, to take funds from those who want to save and make them available to those who want to borrow.'"
Well, that's certainly [iyour [/iconception of an ideal bank. Whether it bears any resemblance to a real world bank is another question entirely. The idea that banks function as an intermediary between savers and borrowers was thoroughly debunked by no lesser light than Joseph Schumpeter in his [iHistory of Economic Analysis (1954)[/i (although Karl Marx made a pretty decent stab at the same in [iDas Kapital[/i). Schumpeter's critique has subsequently been affirmed by many other economists such as Charles Goodhart, Richard Werner & Tony Greenham.
Banks [iDO NOT[/i need savings deposits to make loans.
[i"Subject, only, but crucially, to confidence in their soundness, banks extend credit by simply increasing the borrowing in the customer's current account, which can be paid away to wherever the borrower wants by the bank 'writing a cheque on itself'"[/i --
Paul Tucker, Deputy Governor, Bank of England.
