Sunday, 30 August 2015

Banks don’t take deposits says Prof Richard Werner.



Prof Werner (who I normally agree with) makes the bizarre claim in this video that the money which people deposit in banks is not owned by those depositors (around 51.30).

Let’s think about that. If I deposit £X in a bank, and assuming the money goes into an instant access account (or “checking” account, to use US parlance), then I am entitled to demand that £X back at any time (e.g. via an ATM). And if the bank doesn’t meet my demands, I can sue the bank.

Now I’d guess that about 99% of the population understand that to mean that the depositor “owns” the £X. And the word “own” like every other word in the English language means what most people understand it to mean. So in exactly what sense is the £X put into a bank not “owned” by the depositor? I’m baffled.

Put another way, the depositor has COMPLETE AND TOTAL CONTROL over the £X. And “complete and total control” equals “ownership” as the word “ownership”  is understood by 99% of the population.

Werner then claims that the deposit is not a deposit, but that it’s a “loan” to the bank. Well, yes it is indeed a loan. But lending something and owning it are not mutually exclusive:  if I lend someone my car, I remain the owner of the car don’t I? Why I’m even having to discuss this stuff is a mystery.

Another point is that if my £X goes into a TERM ACCOUNT rather than a current / checking account (i.e. if I give up any right of access to the money for a month or two), then that’s more in the nature of a loan. But that’s what might be called a “shade of grey” point. The fact that one type of deposit is more “loanish” than another isn't important.

Banks don’t lend money?

Next, Werner makes another bizarre claim, namely that “banks don’t lend money” (around 52.40). Well let’s think about that.

Money is defined in economics dictionaries as something like “anything widely accepted in payment for goods and services”. Now if I get a loan for £Y from a bank, I can then use that £Y to buy goods and services without any great problems. So… the bank has supplied me with money! Doh!

Moreover, I’ll have to repay the £Y at some stage.  When person A supplies you with item B which you have to return to A at some stage then person A has loaned item B to you – as 99% of the population understand the word “loan”.

1 comment:

  1. I agree with you on the deposits but would guess what he was trying to say re: bank loans is that the bank is creating money rather than lending funds deposited by other customers.

    I think he's right on both counts in strictly economics text book terms but not in plain English.


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