How Do Banks Work? (#72)

How Do Banks Works?

Banks are said to be one of the most powerful financial bodies as they hold the power to change the look of the Economy by various means!

Have you ever wondered, how exactly do these Banks really work? ---- How & also Why would they pay 'US' interest? How is paying Us interest beneficial for them? & how do Banks earns, themselves?

So, here's an overview of the entire Banking System, answering/covering all the above mentioned questions!

So;

Banks basically tends to collect money from common people & actually we are the one's to deposit money for various reasons; now, it can be to keep our money safe &/OR simply to earn some interest on our money! ---- Banks don't really come asking for the money; We are the one's to go to'em.

& after depositing the money if we don't withdraw the money from the Bank for 1 year than we get; let's say 4% of interest, on that.

But how & why....

So, here's what really happened in the Background....

Well, as we know that the Banks give loans as well.

What do you think the money to give loans is coming from?

It's not the Banks! In fact, it's our // the common citizens money that they deposited!

Well, the thing is that; Banks lend our money for let's say 8% of interest rate. & hence.... out of which they pay us 4% yearly & the rest is their profit // income.

---- & this also answers the question of how Banks earns themselves.

So, you think that you're money is safe when you deposit it in the Banks.

So, yeah.... there isn't a room full of cash in Banks & neither is anyone's money kept in any of such places.

So, now you know why Banks runs out of cash even if you go to withdraw just a part of your entire deposit.

But still; our money is quite safe because, Banks have a leading role in this entire lending procedure.

That means; if for example a person who took a home loan defaults (fails to pay the loan's emi); then the Banks may quickly sell the house & recover the money to avoid losses.

So, this may kind of seem like a Win-Win situation.

But the picture wasn't quite similar to this "Win-Win" in the 2008 Crisis

Things didn't go like this 'cuz Banks were struggling to find buyers for homes 'cuz 90% of people have bought the houses via loans only & now they were all up for sale & no buyers out there. ---- & this caused the prices of houses to fall!

& Banks were out of cash!!

& so yeah, overall the 2008 Crisis was one of the worst financial crisis in history!

Read: The Great Recession/The 2008 Crisis Case Study! Everything You Need To Know Explained In Simple Terms!

Anyways, so.... That's pretty much it!

Hope you enjoyed reading this article!

Thanks For Reading!

Comments

What Is Bitcoin Mining? Get Free Bitcoins! (#34)

How Do The Rich Avoid Paying Taxes? (#82)

Almost all of us have heard that how the Rich people get away with Paying literally 0$ in Federal Income Taxes, LEGALLY.... Have you ever wondered, how do they really get away with it.... Pretty sure you did.... 'cuz I know that it's the Curiosity that brings you here. Isn't it? Okay! Well.... Today we'll take a deep dive into what are the tricks & strategies, the millionaires & the billionaires.... Rich in short.... actually use to avoid paying Taxes.... So, let's take a deep dive right into this article's topic & get started.... So here we go.... Talking 'bout the first thing the Rich do is that they Invest in Real Estate, Share Market, Bonds & multiple such assets in which their money will just keep on Compounding over time! Now, the term Invest won't really seem that surprising.... 'cuz like everybody nowadays invests but are anyways taxed! Well, first now I wanna let y'all know that if for the Income there is Income Tax the...

What Is Share Market? All About Stock/Share Market! [Explained In Easy Words] (#2)

What Is the Share Market? A Complete Beginner's Guide The share market gives ordinary people a way to earn returns without actively working for that money — instead, their capital works on their behalf. Many are drawn to it by the promise of high returns that have turned everyday investors into millionaires over time. Just as many are wary of its downside, having watched others lose significant sums. Every day, thousands of new investors enter the market and begin their investing journey. This guide covers everything you need to know about the share market from an investor's perspective. Jump to any section below: What is the share market? How was it formed? (A brief history) How does it work today? Is it risky? Should you invest? How do you start investing? (Demat and trading accounts) How do you avoid losses, and where can you learn more? Bonus: Stocks vs. shares, and the definition of "securities" What Is the Share Market? Just as a regular ...

How To Become A Stock Broker? What Do You Require To Get Into This Field? [Basic Requirements!] (#45)

How to Become a Stock Broker: Basic Requirements Considering a career as a stock broker? Here's a look at what it typically takes to break into the field. Note: this is based on independent research and reflects general, commonly-cited requirements — it isn't legal or professional guidance. Requirements vary meaningfully by country, so always confirm the specifics with your own country's capital market regulator before pursuing this path. Common Requirements (India, as an Example) Since requirements vary significantly by country, here's a general picture based on India's framework, where the process is fairly well documented: Educational background : at minimum, having passed 12th grade (10+2), though most brokerage firms strongly prefer — and often require — a bachelor's degree in finance, commerce, economics, or a related field. Minimum age : typically 21 years old. Certification exams : candidates generally need to pass relevant certification exams (in I...

What Are Commodity Investments? Introduction To Commodities Market! (#9)

What Are Commodity Investments? Introduction to the Commodities Market There's a lot more to trade in the markets today beyond company shares — F&O (Futures & Options) , Currencies , Bonds , and Commodities are all traded too. Today, we're covering the basics of Commodity investments. Table of Contents What Are Commodities? Definition Types of Commodities Available to Trade Commodity Exchanges How Are Commodities Actually Traded? Risk Why Invest, Despite the Risks? Have I Ever Invested in Commodities Myself? What Are Commodities? Definition Commodities are things that originate from nature — crude oil, gold, and silver, for example. They aren't artificial or man-made, and most are non-renewable resources: things that, in theory, could eventually run out or become harder to obtain. Most non-renewable resources are mined, like gold and silver. Others, like coal and petroleum, are fossil fuels — also exhaustible over time. Commodity prices fluctuate ...

RSPH Blogs - Finances!

Search This Blog