{"id":39690,"date":"2017-08-18T02:00:14","date_gmt":"2017-08-18T06:00:14","guid":{"rendered":"http:\/\/quotulatiousness.ca\/blog\/?p=39690"},"modified":"2017-08-07T10:26:34","modified_gmt":"2017-08-07T14:26:34","slug":"what-do-banks-do","status":"publish","type":"post","link":"https:\/\/quotulatiousness.ca\/blog\/2017\/08\/18\/what-do-banks-do\/","title":{"rendered":"What Do Banks Do?"},"content":{"rendered":"<p align=\"center\"><iframe loading=\"lazy\" width=\"853\" height=\"480\" src=\"https:\/\/www.youtube.com\/embed\/sbvAAezbCKU?list=PL-uRhZ_p-BM52EbMG1NR1ZfG9tEvcxE4u\" frameborder=\"0\" allowfullscreen><\/iframe><\/p>\n<blockquote><p><strong>Published on 28 Jun 2016<\/strong><\/p>\n<p>This week: Dive deeper into one type of financial intermediary: Banks.<\/p>\n<p>Next week: Sticking with macroeconomics, we\u2019ll take a look at the next intermediary: Stock Markets.<\/p>\n<p>Some people want to save and invest, others want to borrow. Sometimes, savers and borrowers link up directly. But most times, they don\u2019t know each other. So they rely on institutions that bridge them together. These bridges are called financial intermediaries, and this video will show you one kind\u2014banks.<\/p>\n<p>How do banks operate?<\/p>\n<p>On the savings side, they attract depositors by paying interest on deposits. On the borrowing side, banks make loans, for which they charge interest. The key to a bank\u2019s profit is in charging a higher interest for loans than the interest paid out to depositors. Of course, to make sure that loans are as productive as possible, banks have specialized staff and systems for evaluating loan applications.<\/p>\n<p>That sort of due diligence, and specialization is central to what a bank does. Not only does a bank coordinate the savings of many, but it also undertakes the task of studying borrowers in order to determine the most qualified. And then, to further minimize risk, a bank will spread its money out across a whole portfolio of loans. Thus, if one loan goes bad, the bank won\u2019t go bankrupt.<\/p>\n<p>In this way, you can see how banks provide valuable services\u2014they allow you to earn interest on your savings, while also turning those savings into loans, which help economic growth.<\/p>\n<p>Notice though, that as a depositor, your savings won\u2019t just rest in a vault. But then, what happens when you decide to make a withdrawal? Banks account for that by having reserves. Banks keep an eye on their reserves so they can cover the withdrawals of various depositors. Predictably, problems arise, when there aren\u2019t enough reserves to cover withdrawals. In the words of our previous video, that\u2019s one kind of failed intermediation.<\/p>\n<p>In the next video, we\u2019ll look at a different kind of intermediary \u2014 stock markets.<\/p>\n<p>There, we\u2019ll show you how stock markets turn savings into investment. Hang tight, and see you then!<\/p><\/blockquote>\n","protected":false},"excerpt":{"rendered":"<p>Published on 28 Jun 2016 This week: Dive deeper into one type of financial intermediary: Banks. Next week: Sticking with macroeconomics, we\u2019ll take a look at the next intermediary: Stock Markets. Some people want to save and invest, others want to borrow. Sometimes, savers and borrowers link up directly. But most times, they don\u2019t know [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":35193,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[831,25],"tags":[436,1093],"class_list":["post-39690","post","type-post","status-publish","format-standard","hentry","category-business","category-economics","tag-banking","tag-macroeconomics"],"jetpack_featured_media_url":"https:\/\/quotulatiousness.ca\/blog\/wp-content\/uploads\/2016\/06\/favicon.png","jetpack_shortlink":"https:\/\/wp.me\/p2hpV6-aka","jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/quotulatiousness.ca\/blog\/wp-json\/wp\/v2\/posts\/39690","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/quotulatiousness.ca\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/quotulatiousness.ca\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/quotulatiousness.ca\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/quotulatiousness.ca\/blog\/wp-json\/wp\/v2\/comments?post=39690"}],"version-history":[{"count":1,"href":"https:\/\/quotulatiousness.ca\/blog\/wp-json\/wp\/v2\/posts\/39690\/revisions"}],"predecessor-version":[{"id":39691,"href":"https:\/\/quotulatiousness.ca\/blog\/wp-json\/wp\/v2\/posts\/39690\/revisions\/39691"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/quotulatiousness.ca\/blog\/wp-json\/wp\/v2\/media\/35193"}],"wp:attachment":[{"href":"https:\/\/quotulatiousness.ca\/blog\/wp-json\/wp\/v2\/media?parent=39690"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/quotulatiousness.ca\/blog\/wp-json\/wp\/v2\/categories?post=39690"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/quotulatiousness.ca\/blog\/wp-json\/wp\/v2\/tags?post=39690"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}