What Is A Bank Loan?

[goldinero 0]

According to the wikipedia,

A loan is a type of debt.... For banks loans are generally funded by deposits.

But this statement is inconsistent with the way all banks and mortgage lenders operate. In fact, it even flies in the face of documents published by the Federal Reserve that clearly state deposits do not fund loans.

 

That banks do not fund loans using deposits can be further shown by looking at call reports for your favorite mortgage lender at the FDIC website. These call reports show that every loan is an asset the bank.

 

If the bank lends $100,000 from its deposits, then its assets would be reduced by $100,000. Even if the bank records the loan as an asset, there would be no net gain in the asset base of the lending institution. But in reality, each time a "lender" makes a loan, its asset base increases by the amount of the loan.

 

So where does the bank get the money to "lend" to the borrower? It gets it from the borrower. The signature on the loan paperwork creates something called "commercial paper" that the bank can sell. So, in actuality, the borrower has created money by making a promise-to-pay and the bank, for putting this promise-to-pay into circulation, charges the borrower a phenomenal fee (called interest) that amounts to a significant fraction of the original "loan."

[BuffaloHelp 24]

Moving to Debate. Please, refrain from throwing in an opinion in the What Is...? section unless you are going to define it for us AND give a specific examples to backup YOUR definition. Please refrain from making this in the What Is...? section, again.

[goldinero 0]

Moving to Debate. Please, refrain from throwing in an opinion in the What Is...? section unless you are going to define it for us AND give a specific examples to backup YOUR definition. Please refrain from making this in the What Is...? section, again.

192001[/snapback]

Very well.

 

Definition:

bank loan - funds extended to a person called the borrower who signs a promissory note to pay the amount of funds (usually with interest) to the bank. A bank asset.

 

Specific examples:

1) I called my credit union credit union and asked an accounts rep how I get free online bill pay. She told me I had to be a gold member. I asked how I become a gold member. She said I had to have a total of $10,000 in deposits and loans with the credit union. When I asked how loans were figured into the amount for gold membership, she replied that loans are assets to the credit union.

 

2) In Modern Money Mechanics published by the Federal Reserve Bank of Chicago, it states that

[banks] do not really pay out loans from the money they receive as deposits. If they did this, no additional money would be created. What they do when they make loans is to accept promissory notes in exchange for credits to the borrowers' transaction accounts. Loans (assets) and deposits (liabilities) both rise.... Reserves are unchanged by the loan transactions. But the deposit credits constitute new additions to the total deposits of the banking system.

3) Mark Cella, in his article "Out of Credit Card Debt - Without Filing Bankrupcy" states

... the FED says ?new money? is brought into existence with the deposit of your promissory note. It is ?money? that was not in the bank or financial institution prior to the deposit of the promissory note.

 

Thus we are told in ?Two Faces of Debt? page 19, ?Such newly created funds are in addition to funds that all financial institutions provide their operation as intermediaries between savers and users of savings.?

 

These funds are in ?addition? to their other funds. What does addition mean? It means to add. The agreement/promissory note is an increase of the financial institution?s funds! Thus from an economic standpoint you were far from getting a loan, you were making a deposit.

Now that I have provided the definition AND specific examples to back up my definition, please put my post back where it belongs: in the What is.... section.

 

Thank you,

 

Goldinero

[BuffaloHelp 24]

And lastly, this "Bank Loan" term is new to you? Alright, I guess this is new to you therefore, moving back to What Is...? section.