[Cowperson]

Simplistic example

A bank has 10 people walk in the door and leave $1 each. The bank has $10.

Regulators require the bank to keep $1.2 around and on hand. This is called a Tier One Capital Ratio.

The bank is also supposed to have a way to generate another two dollars or so fairly quickly in case of unlikely but possible demand from depositors. Other tiers of capital ratios.

The bank then lends out the other money.

Therefore the bank has about $1 on hand, a few other dollars close at hand and the rest is gone into the economy.

The banking industry for centuries has been built on the scenario that no more than one or two of those ten people at any one time is going to show up and ask for their dollar back on any day of the week.

It is essentially true that banks are insolvent in that they don't have your money at hand if you and nine other people showed up and asked for it.

Its also a practice built on centuries of practice and common sense.

Where the world got in trouble in 2008 is that a firm like Bear Stearns effectively owed $32 for every $1 it had on deposit. It needed everything to go right. All the time.

Banks make profits. In Canada, we give them semi-monopoly status in exchange for heavier regulatory oversight versus other countries. Our banks are generally prevented from driving themselves over cliffs because they would eventually if given the chance. We pay for that benefit through reduced competition.

Quid pro quo.

The notion that banks shouldn't make money or that there should be limits on the amount a bank or a banker can make is absurb. It misses the entire point.

Banks are essential to a modern economy. They help the blood (money) flow through the body (the economy). Without blood flow, you're dead.

Its about the level of regulatory oversight. There should be more of it. Bankers should not be trusted to know what the best level of oversight is. That's where the people come in and can protect the system through regulatory bodies.

My two cents.

Cowperson

Cowperson