About Banks

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

Chartered 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 fisherman is a business which harvests fish 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 chartered bank makes money by loaning money. A bank is the only business that makes money out of money!

Chartered 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 conjunction with Google Maps .

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 congruent 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 margins, 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.

Wednesday, October 30, 2024

My experience in private banking and currencies includes:-

(a) Lending money to Laidlaw Waste Systems at 36% p.a.

(b) Working for Augen Capital

(c) Volunteer work for The Toronto Dollar

(d) Presentations to a dollar committee in Goderich Ontario

(e) Attendance at monthly meetings of World Bank/International Bank in Toronto

Tuesday, November 19, 2024

Search for “unsecured loans” and you will come across sites like this: https://www.springfinancial.ca/ loans at 10%.

Wednesday, February 12, 2025

“ Santander on Thursday will start offering fixed rate deals at 3.99% lasting for two and five years. However, eligible borrowers need a 40% deposit, or a sizeable amount of equity to access the deals.” Compare this to 5% for a two-year term; what a deal!

Tuesday, December 09, 2025

Fifteen years ago I met a banker who lent money to gold-mining exploration firms. The phone would ring in the morning "Can you len me Fifty million dollars so that I can launch a gold-mining exploration firm?" I’ll call you back this afternoon. David (not his real name) would then pghone ten of his colleagues "Can you lend me ten, twenty, fifty million dollars?". By late afternoon David had put together a package for $50M. He phoned the applicant "I have a package of $50M, but can you pay one-and-a-half percent higher interest than you had hoped?". Yes.

David then phoned his colleagues "We are ready to go with a package of $50M, but can you pay one-and-a-half percent lower interest than you had hoped?". Yes. The deal for $50,000,000 was struck with David harvesting 1½% from each side. Can you calculate 3% of $50,000,000?

I asked David "What do you do for the rest of the year?" He said "I play a lot of golf". I worked out that his real work was not "lending money", but cultivating relationships between him and his colleagues, associates, friends.

Now chances are that not one of his colleagues, associates, or friends had access to $10,000,000, but each of them had access to ten of their colleagues, associates, friends, so those phones would ring hot. Down, down that tree of relationships we could go, spreading the load of the loan. Ponzi schemes are bad, but a pyramid built on a solid foundation of trust is a good structure.

David is at the apex; at the next level are colleagues who can raise $10,000,000; at the next level are colleagues who can raise $1,000,000; at the next level are colleagues who can raise $100,000. That is probably the base. Most investors would not be interested in dealing in loans of less than a hundred-thousand dollars; how much time would you spend on the phone trying to raise ten dollars, or one dollar?

I believe that the insurance world is run on a set of Underwriters, spreading the load.

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