How Banks Create Money
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- čas přidán 11. 11. 2018
- You can't make money out of thin air…unless you're a bank.
Today we learn the surprising truth behind the vault and learn what happens to the hard-earned money we deposit.
The basics of banking has always been that banks connect people in need of money with people holding excess money in need of a safe place to store it. As we learn in this video, banking goes way beyond this simple transaction.
Another major form of income for banks that was not heavily covered in this video includes fee income. This includes things like account service fees, credit/debit card fees and more.
Many concepts in this video were simplified for the sake of explaining concepts. For example, in the real world, people that borrow money typically don't hold on to it as cash and will instead use it to buy goods and services. The person/company receiving that payment will then deposit the money in their own accounts. Feel free to ask questions in the comments below for a deeper explanation on anything covered (or not covered) in the video and I will try my best to answer.
This video was influenced by the following:
www.frbatlanta.org/education/...
www.investopedia.com/articles...
www.cnbc.com/id/100497710
DISCLAIMER: The information provided by Five Minute Finance and from any communication related to Five Minute Finance is for education purposes only. The creator(s) of Five Minute Finance is not registered to provide investment advice and as such does not make any recommendation or endorsement as to any investment, advisor, or other service or product or to any material submitted by third parties or linked to this channel. Five Minute Finance does not hold itself out as providing any legal, financial, or other advice. No content provided by Five Minute Finance constitutes - or should be understood as constituting - advice and you should not rely on any material by Five Minute Finance to make (or refrain from making) any decision or take (or refrain from taking) any action. We make financial suggestions and it is up to our visitors to make their own decisions, or consult with a registered professional.
Music: www.bensound.com/royalty-free...
I just about to go to sleep, then my brain start asking how bank makes money. Now that I got the answer, I may sleep in peace 👌🏻
Start investing lol
Same for me.
Bruh 😂😂 same
I'm the same watching this as I'm in bed 😂
Same here.
Banks don't need deposits to issue loans. They create brand new money when they issue a loan. Central banks have stated this fact for quite some time.
Thank you very much for pointing that out. It cannot be told too often.
what they say in the first part of video makes no sense... I wouldn't be able to acess my money if it was used by the bank to make loans... they corect themsleves at 2:30
Absolutely, they can print money from nothing while we can't!!! they cause inflation, and that makes people's money that they worked hard for less valuable every time!!!
What do you mean they create new money when they issue a loan? Where does the money come from? From the client or central bank?
They change a number on your account, that's literally all They do, it's money from nothing
When I watched the first 30 seconds, I knew I'm in a right video.
Great video!!! This stuff is hella interesting
keep it up bro you are making a great content
it's so sad that u didn't upload a video for the last 3 months
This helped a lot. I was reading an Economics book and I was kind of confused with the 10% reserves and creating the money part. Thanks!
Fed eliminated reserve requirements
Thank you. Short and very informative
I was reading Rich Dad's Cash flow quadrant and didn't quite understand the concept . This video explained it perfectly! Thanks
Such a great book
@@kdv_fit Robert is a scam
This was very helpful, thank you.
Thanks for the video💯just what I need to learn📝📝📝
Tbh I came here so I could more easily understand the Kurzgesagt video. Thank you
Training to be a Teller and this helps more than the modules!
Great video. Subscribed. How did you make your animations? What software?
Banks never lend deposits. Banks create money out of nothing whenever they make a loan. The fractional reserve theory of banking, like the financial intermediary theory of banking is complete bunk. The credit creation theory of banking is accurate.
They are talking about ratios bro. Reserves held measured against new money creation. The explanation is simplified to one person to make the process easier to understand.
Banks cannot create money out of nothing so no, you are complete bunk.
@@thefreedomrebelclub1865 it's insanely disproportionate
loans just get created out of air.
bippity boppity...bank?
This video explained what I haven't understood in my 49 years
@Blue Traveller what? Just because I go to a barber doesn't mean I know how to cut hair
@Blue Traveller I really don't know what your point is. This video explained what I didn't know before. To your question if I've ever been to a bank is of cause yes. It doesn't mean that I know how a bank works. If I did I wouldn't have watched this video. Now I do understand better. What is your point?
@Blue Traveller I still don't know what your point is. Why don't you make a video or write a book if you want to educate people?!.🤔
one of the best videos! thanks a lot
Well described 👏
Great video 👍🏼
Great and informative video
Great info..
Correction… Bank give you 0.1% interest to your savings account not 1.0%
In indias its 7%
I am sure you know the reserve requirement was lower to 0 in 2020. I liked the video, but it would be nice if you emphasized that all bank money is created. What the Federal reserve does is supply the base for money creation. Other than cash the money created by the federal reserve is held in the reserve accounts in banks.
Useful Info
This video is the neo classical view on banking, this is not how banking actually works. Banks create loans in a debt credit relationship, the bank creates money out of nothing but once the money is payed back the money is destroyed.
I‘m not an expert but I think that, at least in Europe, the banks actually need to refinance the money that was given away as a credit as soon as the customer is using it. I mean otherwise they wouldn’t even need any money and could give endless credits.
It is was worse that this, when a loan is created the money is created and the bank gets to keep the interest.
Wonderful...Vedio
They done lend out reserves ,they classify loans as deposit liabilities thus creating money
What is underground banking?
Thanks 😊
WHO THE FUU DOWN THUMBS THIS? Fantastic content!!!
The explanation video about banking is very clear, helpful and increases our knowledge. Thank's 🙏🙏🙏
Can you explain bank certificates and how they work?
Thanks❤
1:01 That’s it? Holy cow!
Keep it up
So how else do we expect banks to make loans? Obviously they need to loan out money deposited by others and make it available for the depositors to withdraw
Awesome
Learn here czcams.com/video/c-M_kVZTf50/video.html
This Video does not say the full story. It just tells you half the truth.
Can I use this video in my video
But I have doubt,if they are giving our money to other folks,then how they manage money of us, means we whenever can withdraw money from bank ?
You had me at Five minute....
Nice
I have a question. So, for example I deposited 100,000 in my savings account. The bank loaned 40,000 from my savings to X, and credited this to X'schecking account. X issued a 20,000 check to his friend. How much cash are we talking about? Is it still 100000 or do I consider the 20k and 40k? How much cash then are available to me, the bank, X and his friend? Is my 100k still available to me? Thank you I was just confused.
The 100,000 is still available to you
Covid19 it’s 0% now a fractional reserve anymore
welp guess the whole banking system is fake and the banks can give fake loans to everyone and double their money in minutes
I heard the Federal Deposit Insurance Corporation does not own any money, and that's why we pay it all back in taxes.
But for this they need lots of new notes how they accrue it?
When you've lent money to the bank you don't have that money in cash, you have a security worth that much. In the example with $10k, you have a $10k security, the bank has $1k and a $9k security, and the borrower has $9k. If we would consider these securities as money, then corporations and governments issuing bonds would also be creating money, but that's absurd.
S T O N K S
Is the Federal Reserve sustainable?
1996-2008: GDP ↑45%, Monetary Base ↑46%
2008-2020: GDP ↑32%, Monetary Base ↑600%
Prior to 2008, the Monetary Base and the GDP were 98% correlated reflecting the reciprocal relationship of money and economic expansion.
Can the current rate of monetary expansion without corresponding GDP growth continue without consequence?
*Bloomberg sued The Federal Reserve in 2011 and uncovered a $7.7T secret bank bailout not represented here.
Wow!!!!
Because most of that money is going into loans for asset purchases, which are not taken into account when calculating GDP. It also explains why you see huge price inflation in stocks and real estate.
PS: Hope you don't believe fractional reserve is how money is created (read through the comments if you want to know how it actually happens)
So... banks won't loan money if there's too high a risk of loss? Loss of what? Money that didn't exist an hour ago?
I don't understand the guy with the cash part. Did he deposit his money as well or its from the first money deposited?
*Ignore the first 2 minutes, it's what the banks say to confuse people. Hope that helps.* 🤫👍
Jesus socialist, incoming...
So when is the revolution?
How someone get's a loan to deposit in another bank for a low rate?
That’s where it went wrong. No 1 deposits money they borrowed from 1 bank into another bank. They spend that money on a liability or invest it into an asset that will cash flow or make a quick profit.
Why would anyone want to borrow at 5% and then deposit that money into a savings account that pays 1%? That is what he said happens that causes the money supply to increase, but that doesnt make sense.
How banks work:
- customers deposit money and gain interest
- they take that money and loan it to businesses with interest rates
- the difference is the bank’s profit
- only 10% actual cash reserves needed in the bank
How banks really work:
-they use people, company, literally everything what you can loan money, goverments etc in slavery... It is quite shocking how so small amount of people understand this. Our current financialsystem is based on dept... With usury it is slavery.
When capitalists ruled europe, practising usury was forbidden and you were killed if you practised it.
I'd like to know how banks are using our deposited money now that Glass-Steagall was repealed. (This arguably caused the 2008 crash.) Are they investing it in risky ventures such as the stock market?
Infinite banking
This is a misconception banks do hot necessarily lend you other people's money they just create the money when anyone asks for a loan
I've read that also. It still hasn't clicked in my head why they take deposits if they aren't intermediaries...? If they create money when issuing a loan based on their confidence that you can repay, why take deposits??
Yeah we call it financial assets aka credit derivatives
@@stuartporteous7762 INTEREST
@@stuartporteous7762 They take customer deposits in order to legitimize bank deposits as a form of money. That is to make the public believe that bank deposits can be converted into currency at any time, and thus it's as good as bills and coins. This is what ultimately allows them to artificially create new deposits (money) when they issue a loan. If they didn't do this, the public would just see it as a scam.
look up richard werner money creation theory, this is fractional reserve theory which isnt correct
Can I create my own bank? And how?
Yes, go talk to your regulator. Most likely a crentral bank in your country
u need doctor degree, bachlor and master
Did the video explain “How money is destroyed?”
how is it "creating money" if you are just transferring one person's money to another only without telling the 1st guy that his money is with someone else now??
wait so if I deposit 10000$ and 9000$ is given to another person doesn't that mean that the banks are printing money out of thin air?
Lets put it in a nutshell. Take from Peter to Paul and Mary. Then take from Paul to pay Peter. Then take from Mary to pay Peter. Obviously there has to be fixed time structures to allow some freeplay.
Someone give me the monke explanation I’m too dumb for this
Who takes out a loan just to put it back into another bank? That part doesn't make any sense to me. Can someone please explain and help me understand?
You will receive the money of the loan because you need to do an investment with your company, for example. How would you afford this investment when you do not have the money in the bank from the loan?
As a company or person you sign for a loan and you will receive that loan into your bank account, otherwise you could never do your investment. You have to need the money of the loan in your bank account, otherwise you could never pay your investment you want to do.
Hopefully you understand it.
I don't get it. Why do people get loans and then just deposit them in the bank? Don't people get loans because they want to buy stuff with it???
So pretty much 95% of the money has to be repayed with interests at some point and the economy of goods and services lives on a perpetual mortgaed money flow, we could only hope to capture some through salaries, profits, leases and dividends and help sustain it through savings that are deposited in the bank so the financial sphere doesn't crack
Why the banks own the money and not the workers and entrepreneurs?
I'm sorry for interrupting this comment section but I'm just curious do u guys think that bankers are smarter than programmers or the vice versa
zajebiste❤
Zgadzam się
Does banks make money off a chequing account
Yes, they like those deposits the most because banks don't have to pay interest on them.
no one explains this properly, fk sake
but I think I finally got it: the bank has to have 10% of it's total balance in cash, so if you deposit $100, the bank can pretend it has $190, because it still has the fkn %10 cash its obligated to have, and know the bank can loan $90 made from "thin air". This is a inflationary force.
When the person who took the loan pays it back is a part I still don't get, cause I've heard the money vanishes....
I fell like crying from joy, I've been trying to understand this for MONTHS 🥳😭
Who started banking system and why???Can anyone explain?
*Capitalist bankers to steal people's productivity.*
Who created money? That person or persons made slaves out of everyone
Actually there is no limit on the reserve that a bank must have
Fractional reserve banking is a myth!
That does not make sense, when I deposit a 1000 in a bank, the bank will debit cash balance and credit the client account, then when the bank loans out money then it will credit its cash balance and debit the other client loan, so total amount of money on the balance sheet should remain at net, no new money created
Money is created only when the Fed buy deposit certificates from other banks with new money
Just print the money
HEDGE FUNDS
I still don't see the creation of money. So the individual is loaning the money to the bank. I don't see that money doing double work only getting loaned back out. I don't see twice the money out there. you have no money till you use it. at that point doesn't the bank need to have the money back from whom they loaned it to for you to use?
Loans Create Expenses!! So they can print more money!
Can someone explain to me how 10k - 9k = 19k?
You still can access your 10k and the other persons the 9k but that 9k was generated from the original amount
But remember the FDIC no obligation to pay you back right away fifty years before you got all your money back
Banks cannot lend their money. Money is created whenever you sign a loan agreement, (A promissory note, aka IOU), so you are borrowing money that YOU created. When you pay it back, it merely disappears and it is as if you hadn't created it. That is except for all the Interest you paid to the bank for being allowed to borrow the money you yourself created. Simples!
Actually only central banks only create money. If you deposit money on your bank, then a large part of your money is being lended to someone that gets a loan.
So indirectly someone else is borrowing YOUR money. The €19.000 simply doesn't exist. It is simply €10.000 of wich €9000 is being lended out and €1000 is actually in the bank. A bank is simply the middle man between the set of depositors and the set of lenders.
To put it really simply. You have a group of dudes that have a lot of money and don't know how to spend all of it, and you have a group of dudes that have some really great ideas but don't have the money to finance it. The bank then serves as the middleman of the economy, making sure as little money as possible is not being spent at any moment.
The problem with the financial crisis was not this fundamental concept, this is a great way of using your potential to the fullest as an economy, but the fact that Banks where to lenient. They lended their money to dudes who couldn't pay it back with interest, and if the borrowed money doesn't return that means trouble for the depositors too. It's always expected that some lenders won't be able to pay back their debts, but if too many can't the bank risks going broke unless saved by the taxpayer.
The solution is simply that you don't lend out money to idiots, only lend out to investors with a really good plan that is highly likely to bring in more money than the start up costs.
Uhh, thank God there's still someone understand credit creation while the whole world getting crazy over 9:1 fractional bs
"It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning."
- Henry Ford
So If I give my bank 10k then I loan them 9k I make 19k wow thanks man!!
well.. not really
I'm confused about that part of the vid
@@beatqueenofcrud do you understand it?
@@spiritbear2445 you technically dont make 19k. if you deposit 10k and get a loan for 9k, the bank owns the 10k you had earlier so 19k is pushed into the money supply but you dont necessarily make 19k i believe. I may be wrong. hope this helps to clear some stuff up though
@@spiritbear2445 *Here's the secret. The first 2 minutes is a lie that banks tell to keep people ignorant. Start at **2:01** it's the truth. Hope it helped you.* 🤔🤔🤔🤫🤫🤫👍👍
Isnt that a ponzy scheme?
🏦🏦🏦🏦
“You can print money but you can’t print wealth”
in case of Lebanon 🇱🇧, the FDIC went bankrupt 😑
They have to do HARD WORK keeping our money safe😂 that's ridiculous
I’m lost
But „making“ money is just wrong.
What they are doing is taking your money and lending it to others.
The bank does not have „more money“.
In theory 2 people do have more money on the banking account than before. But this system only works because you do not withdraw your money. So all this does is give your money to others.
If suddenly all people would withdraw their money the system would collapse.
Waheguruji Ka Khalsa
Waheguruji Ki Fateh
In God We Trust
I really want Guru Gobind Singhji to please look into this matter
As a teacher I must say this is a great video
as a teacher?!? you should not be allowed to teach just because you believe this crap and can't find the obvious gaps in his logic. if you put 10K in a bank and all goes in a deposits pot! from there the 9K for a loan will be taken and not from the 10K! are you serious?!?!?! if the first guy takes the 10K out he will not take his actual money out but again from this pot! no money is being made here! Idiocracy was a documentary about the future... it sure seems that way... I am astound....
@@chiravalentin wow. You sound like a great person. I should not be allowed to teach because I like a video that you don’t? Lol. There is an obvious gap here if a CARTOON can make you feel that way. Ok CZcams bully lol.
@@chiravalentin furthermore it is a short so obviously there is more to it than that but you are truly a sad person to attack me that way over a simple opinion about a cartoon. I hope your life gets better.
@@VisionsTalent no. you should not be a teacher because you promote fake news like this. who would want to have a teacher for their kids that is a flat earther or believes in adam and eve aka "cration"?... ups... forgot about americans...🤣🤣
@@chiravalentin you’re life is miserable life. How do know what I promote? You are making assumptions of my opinion and we know what they say about people who make assumptions. One statement is not to characterize me. I’m over this conversation. Enjoy your weekend.
I am billionare
I don’t get how it turned to 19000 if he has his money cash
The bank can essentially create the other $9,000 out of thin air. The fact that the borrower has to pay back the $9,000 plus interest leads to its existence. Like the video said, it literally increases the money supply. :)
@@lachlanhyde1924 Here's the part I don't understand: that $9000 loan has a -$9000 debt that is created at the same time. Are debts not included when calculating money supply? If they aren't, then you don't need the deposits at all. Every time anyone borrows money, formally or otherwise, they're increasing the money supply.
@@iamihop1123 From my experience I don’t think debts are included in the money supply. If you have a look at the amount of money that has been injected into the economy by central banks recently, that has increased the money supply dramatically, all the while increasing the amount of debt that governments hold. I think what this video is saying is that when banks receive a deposit, they must retain a certain amount (known as a reserve requirement) of this deposit in order to satisfy liquidity and capital needs. However, they are able to lend the remaining amount. Through this, they are able to turn a $1,000 deposit into $1,900 in the real economy by retaining $100 and lending $900, while still upholding the financial claim of the initial depositor’s $1,000.
That is how the banks pool money. You deposited 10,000. Banks gain 10,000. Banks reserve 1,000. Bank lends the 9,000. Business gets 9,000, earns then pays the bank with interest. The bank has now in principle 19,000 plus the interest to be used. This is the idea, at least.
haha i almost thought this was for the world, its just america then
0:20 Dude, it's against the law for banks to lend out ANY money that belongs to any of their customers. Where did you get this silliness from?
Just go download and read modern money mechanics if you wanna know how money is made.
basically money is a scam or more specifically modern money is a scam
Let’s pretend that banks don’t actually create fake money from thin air to loan out ;)
Banks take our money loan it out and give us a very small portion of it
Hi my name's chanathip naseekun