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How Banks Make Money from Home Loans

WHAT THE FRAC? BANK How Banks Make Money from Home Loans Fractional Reserve Banking refers to a banking system which requires the commercial banks to keep only portion of the money deposited with them as reserves. The bank pays interest on all deposits made by its customers and uses the deposited money to make new loans. How It Works in Practice BANK A John deposits $10,000 in Bank A 2 BANK A Bank A keeps 10% ($1,000) as reserves, and loans out the rest 90% ($9,000) to Jane BANK B Jane deposits $9,000 in Bank B BANK A $10,000 (John's deposit) BANK B $9.000 (Jane's deposit) The banks just created $19,000 based on a $10,000 deposit in just a few steps. BANK A BANK B If you do this operation 50 times, John's initial $10,000 turns into $99,525! As the amount of money kept in the bank is generally only a little fraction of the deposit, bank runs can Occur when large number of people demand their deposit, causing banks to become insolvent, unless the central bank intervenes. Total Debt on Home Loans * as of Q1 2012 According to the Fed, total mortgage debt outstanding currently stands at $13,4 trillion Mortgage debt by property type (x 20) One-to-four farmily residences Multi-family residences Nonfarm, nonresidential Farm 76 % 6.3 % 16.5 % 0.98 % Mortgage debt by holder type 32.8 % 37.7 % Major financial institution Federal & related agencies 7.4 % 22.1% Mortgage pools or trusts Individuals & others Sources www.onemint.com/2009/02/11/what-is-fractional-reserve-banking/ wwwyesmagazine.org/issues/the-new-economy/how-banks-make-money Tomorrow www.centralbanksguide.com/fractional+reserve+banking/ www.federalreserve govleconresdata/releases/mortoutstand/currenthtm money howstuffworks.com/personal-finance/banking/banik4htm en.wikipedia.org/wiki/Fractional_reserve banking Dream a simple home loan www.tomorrowfinance.com.au WHAT THE FRAC? BANK How Banks Make Money from Home Loans Fractional Reserve Banking refers to a banking system which requires the commercial banks to keep only portion of the money deposited with them as reserves. The bank pays interest on all deposits made by its customers and uses the deposited money to make new loans. How It Works in Practice BANK A John deposits $10,000 in Bank A 2 BANK A Bank A keeps 10% ($1,000) as reserves, and loans out the rest 90% ($9,000) to Jane BANK B Jane deposits $9,000 in Bank B BANK A $10,000 (John's deposit) BANK B $9.000 (Jane's deposit) The banks just created $19,000 based on a $10,000 deposit in just a few steps. BANK A BANK B If you do this operation 50 times, John's initial $10,000 turns into $99,525! As the amount of money kept in the bank is generally only a little fraction of the deposit, bank runs can Occur when large number of people demand their deposit, causing banks to become insolvent, unless the central bank intervenes. Total Debt on Home Loans * as of Q1 2012 According to the Fed, total mortgage debt outstanding currently stands at $13,4 trillion Mortgage debt by property type (x 20) One-to-four farmily residences Multi-family residences Nonfarm, nonresidential Farm 76 % 6.3 % 16.5 % 0.98 % Mortgage debt by holder type 32.8 % 37.7 % Major financial institution Federal & related agencies 7.4 % 22.1% Mortgage pools or trusts Individuals & others Sources www.onemint.com/2009/02/11/what-is-fractional-reserve-banking/ wwwyesmagazine.org/issues/the-new-economy/how-banks-make-money Tomorrow www.centralbanksguide.com/fractional+reserve+banking/ www.federalreserve govleconresdata/releases/mortoutstand/currenthtm money howstuffworks.com/personal-finance/banking/banik4htm en.wikipedia.org/wiki/Fractional_reserve banking Dream a simple home loan www.tomorrowfinance.com.au WHAT THE FRAC? BANK How Banks Make Money from Home Loans Fractional Reserve Banking refers to a banking system which requires the commercial banks to keep only portion of the money deposited with them as reserves. The bank pays interest on all deposits made by its customers and uses the deposited money to make new loans. How It Works in Practice BANK A John deposits $10,000 in Bank A 2 BANK A Bank A keeps 10% ($1,000) as reserves, and loans out the rest 90% ($9,000) to Jane BANK B Jane deposits $9,000 in Bank B BANK A $10,000 (John's deposit) BANK B $9.000 (Jane's deposit) The banks just created $19,000 based on a $10,000 deposit in just a few steps. BANK A BANK B If you do this operation 50 times, John's initial $10,000 turns into $99,525! As the amount of money kept in the bank is generally only a little fraction of the deposit, bank runs can Occur when large number of people demand their deposit, causing banks to become insolvent, unless the central bank intervenes. Total Debt on Home Loans * as of Q1 2012 According to the Fed, total mortgage debt outstanding currently stands at $13,4 trillion Mortgage debt by property type (x 20) One-to-four farmily residences Multi-family residences Nonfarm, nonresidential Farm 76 % 6.3 % 16.5 % 0.98 % Mortgage debt by holder type 32.8 % 37.7 % Major financial institution Federal & related agencies 7.4 % 22.1% Mortgage pools or trusts Individuals & others Sources www.onemint.com/2009/02/11/what-is-fractional-reserve-banking/ wwwyesmagazine.org/issues/the-new-economy/how-banks-make-money Tomorrow www.centralbanksguide.com/fractional+reserve+banking/ www.federalreserve govleconresdata/releases/mortoutstand/currenthtm money howstuffworks.com/personal-finance/banking/banik4htm en.wikipedia.org/wiki/Fractional_reserve banking Dream a simple home loan www.tomorrowfinance.com.au WHAT THE FRAC? BANK How Banks Make Money from Home Loans Fractional Reserve Banking refers to a banking system which requires the commercial banks to keep only portion of the money deposited with them as reserves. The bank pays interest on all deposits made by its customers and uses the deposited money to make new loans. How It Works in Practice BANK A John deposits $10,000 in Bank A 2 BANK A Bank A keeps 10% ($1,000) as reserves, and loans out the rest 90% ($9,000) to Jane BANK B Jane deposits $9,000 in Bank B BANK A $10,000 (John's deposit) BANK B $9.000 (Jane's deposit) The banks just created $19,000 based on a $10,000 deposit in just a few steps. BANK A BANK B If you do this operation 50 times, John's initial $10,000 turns into $99,525! As the amount of money kept in the bank is generally only a little fraction of the deposit, bank runs can Occur when large number of people demand their deposit, causing banks to become insolvent, unless the central bank intervenes. Total Debt on Home Loans * as of Q1 2012 According to the Fed, total mortgage debt outstanding currently stands at $13,4 trillion Mortgage debt by property type (x 20) One-to-four farmily residences Multi-family residences Nonfarm, nonresidential Farm 76 % 6.3 % 16.5 % 0.98 % Mortgage debt by holder type 32.8 % 37.7 % Major financial institution Federal & related agencies 7.4 % 22.1% Mortgage pools or trusts Individuals & others Sources www.onemint.com/2009/02/11/what-is-fractional-reserve-banking/ wwwyesmagazine.org/issues/the-new-economy/how-banks-make-money Tomorrow www.centralbanksguide.com/fractional+reserve+banking/ www.federalreserve govleconresdata/releases/mortoutstand/currenthtm money howstuffworks.com/personal-finance/banking/banik4htm en.wikipedia.org/wiki/Fractional_reserve banking Dream a simple home loan www.tomorrowfinance.com.au

How Banks Make Money from Home Loans

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Fractional Reserve Banking refers to a banking system which requires the commercial banks to keep only a portion of the money deposited with them as reserves. The bank pays interest on all deposits ma...

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