The following exchange was published in the British humor magazine, Punch, on April 3, 1957. It is reposted here as an appropriate introduction and as a mental exercise to limber the mind for the material contained on this Facebook wall: Q. What are banks for? A. To make money. Q. For the customers? A. For the banks. Q. Why doesnt bank advertis- ing mention this? A. It would not be in good taste. But it is mentioned by implica- tion in references to reserves of $249,000,000 or thereabouts. That is the money that they have made. Q. Out of the customers? A. I suppose so. Q. They also mention Assets of $500,000,000 or thereabouts. Have they made that too? A. Not exactly. That is the money they use to make money. Q. I see. And they keep it in a safe somewhere? A. Not at all. They lend it to customers. Q. Then they havent got it? A. No. Q. Then how is it Assets? A. They maintain that it would be if they got it back. Q. But they must have some money in a safe somewhere? A. Yes, usually $500,000,000 or thereabouts. This is called Liabilities. Q. But if theyve got it, how can they be liable for it? A. Because it isnt theirs. Q. Then why do they have it? A. It has been lent to them by customers. Q. You mean customers lend banks money? A. In effect. They put money into their accounts, so it is really lent to the banks. Q. And what do the banks do with it? A. Lend it to other customers. Q. But you said that money they lent to other people was Assets? A. Yes. Q. Then Assets and Liabilities must be the same thing? A. You cant really say that. Q. But youve just said it. If I put $100 into my account the bank is liable to have to pay it back, so its Liabilities. But they go and lend it to someone else, and he is liable to have to pay it back, so its Assets. Its the same $100, isnt it? A. Yes. But... Q. Then it cancels out. It means, doesnt it, that banks havent really any money at all? A. Theoretically.... Q. Never mind theoretically. And if they havent any money, where do they get their Reserves of $249,000,000 or thereabouts? A. I told you. That is the money they have made. Q. How? A. Well, when they lend your $100 to someone they charge him interest. Q. How much? A. It depends on the Bank Rate. Say five and a-half per cent. Thats their profit. Q. Why isnt it my profit? Isnt it my money? A. Its the theory of banking practice that... Q. When I lend them my $100 why dont I charge them inter- est? A. You do. Q. You dont say. How much? A. It depends on the Bank Rate. Say half a per cent. Q. Grasping of me, rather? A. But thats only if youre not going to draw the money out again. Q. But of course, Im going to draw it out again. If I hadnt wanted to draw it out again I could have buried it in the gar- den, couldnt I? A. They wouldnt like you to draw it out again. Q. Why not? If I keep it there you say its a Liability. Wouldnt they be glad if I reduced their Liabilities by removing it? A. No. Because if you remove it they cant lend it to anyone else. Q. But if I wanted to remove it theyd have to let me? A. Certainly. Q. But suppose theyve already lent it to another customer? A. Then theyll let you have someone elses money. Q. But suppose he wants his too ... and theyve let me have it? A. Youre being purposely ob- tuse. Q. I think Im being acute. What if everyone wanted their money at once? A. Its the theory of banking practice that they never would. Q. So what banks bank on is not having to meet their commit- ments? A. I wouldnt say that. Q. Naturally. Well, if theres nothing else you think you can tell me...? A. Quite so. Now you can go off and open a banking account. Q. Just one last question. A. Of course. Q. Wouldnt I do better to go off and open up a bank?
Posted on: Fri, 01 Nov 2013 17:15:12 +0000
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