About Banks

https://www.abc.net.au/news/2024-01-27/apollo-bay-locals-leave-due-to-housing-shortage-childcare-crisis/103190466

Banks (and other financial institutions such as Insurance companies) are a unique form of business.

“Business is the exchange of TWO pieces of paper, ONE of which MUST be a cheque”, my avuncular accountant Rae Harrison taught me.

A farm is a business which grows wheat and sells it for money

A consultant is a business which gains expertise and sells it for money.

Some jobs you just have to show up and effectively sell your presence for money.

But a bank makes money by loaning money. A bank is the only business that makes money out of money!

Banks lend money to entities (people, corporations, sole-proprietorships, …) and charge interest on the loan; they receive in return the original amount of the loan PLUS the amount of interest, and banks have been doing this long enough to factor in inflation, and defaulting, too!

The bulk of the interest gained comes from the loans that are relatively large. To me a mortgage on a $60,000 house is huge, but someone starting up a new business will ask for a loan of $250,000 or more, and while I am likely to ask for an $8,000 loan for new wiring in my house, a business will ask for $250,000 loan to expand the business.

Banks make the bulk of their income from business loans.

So when a bank decides to close a branch, it is a sure signal to the town that the bank branch, looking into the future, cannot sustain its life in the coming years from business loans. Head Office looking at the figures for the past five years says “Your revenue from business loans is going down, steadily and measurably each year”, and they pull the plug. The local branch of the bank closes.

This means, surely, that the bank sees the town as a place where (1) new businesses are most unlikely to appear and (2) existing businesses are most unlikely to expand.

That is to say, the bank’s head office believes that the town is not going to grow, the town will either stay as it is, or more likely, wither away to a hard-core population who need little more than a grocery store and, for those who own a vehicle, a maintenance garage with a gasoline pump.

Sad, but true!

See also this article , but read it in conjuction with Google Maps .

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Wednesday, February 28, 2024

This article https://www.abc.net.au/news/2024-02-28/worried-about-price-gouging-banks-simple-solution/103517610 describes part of the Australian banking system. (Australia and Canada are vonguent nations). Note the comments “In banking, the National Australia Bank has just reported a return on equity (profit as a proportion of shareholders funds) of  12.9 per cent . The Commonwealth Bank reported  13.8 per cent .”

What are the margoins, this year, for Scotiabank, CIBC, Royal Bank and CanadaTD?

Note too the comment “The primary function of a bank is to provide a numbered account into which Australians can deposit and withdraw funds.”. I disagree with that. It is a fair comment from the consumers (personal) point of view, but the purpose of any business is to increase its capital – to increase its money. The banks achieve this, in part, by managing individual accounts.