Bank - Revision history

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	<!--		<!--
	In the early history of banking there were banks whose only operation consisted in issuing money-certificates, in effect warehouses of money.<ref name="Goods">Ludwig von Mises. [https://~~mises.~~freecapitalists.org/~~humanaction~~/~~chap17sec12.asp~~ "12. The Limitation on the Issuance of Fiduciary Media"], ''Chapter XVII. Indirect exchange'', [[Wikipedia:Human Action\|Human Action]] online edition, referenced 2009-06-05.</ref>		In the early history of banking there were banks whose only operation consisted in issuing money-certificates, in effect warehouses of money.<ref name="Goods">Ludwig von Mises. [https://freecapitalists.org/books/human-action/read/chapter-xvii-indirect-exchange/ "12. The Limitation on the Issuance of Fiduciary Media"], ''Chapter XVII. Indirect exchange'', [[Wikipedia:Human Action\|Human Action]] online edition, referenced 2009-06-05.</ref>
	-->		-->

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	{{Main\|Banknote}}		{{Main\|Banknote}}

	Banks issue banknotes. Historically, they were [[money]] substitutes, that the bank was prepared to exchange free of charge against money proper.<ref name="Mises_banknote">Ludwig von Mises. [https://mises.freecapitalists.org/humanaction/chap17sec11.asp "11. The Money-Substitutes"], ''[[Human Action]]'', online version, Chapter XVII. Indirect Exchange, referenced 2009-06-29.</ref> With [[Fiat Money\|paper money]], a banknote is a promise to the same amount of paper money.<ref name="Hulsmann_paper_banknote">Jörg Guido Hülsmann. [~~http~~://~~www.mises~~.org/books/~~moneyproduction.pdf~~ "The Ethics of Money Production"], online version, Chapter 12. Paper Money p.162, referenced 2009-06-30.</ref>		Banks issue banknotes. Historically, they were [[money]] substitutes, that the bank was prepared to exchange free of charge against money proper.<ref name="Mises_banknote">Ludwig von Mises. [https://mises.freecapitalists.org/humanaction/chap17sec11.asp "11. The Money-Substitutes"], ''[[Human Action]]'', online version, Chapter XVII. Indirect Exchange, referenced 2009-06-29.</ref> With [[Fiat Money\|paper money]], a banknote is a promise to the same amount of paper money.<ref name="Hulsmann_paper_banknote">Jörg Guido Hülsmann. [https://freecapitalists.org/books/the-ethics-of-money-production/ "The Ethics of Money Production"], online version, Chapter 12. Paper Money p.162, referenced 2009-06-30.</ref>

	==Fractional Reserve Banking==		==Fractional Reserve Banking==
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	If a bank would not expand its reserves, it could lend only the money of its savers and its own capital. It would be simply a financial middleman. To stay profitable in a free market, it would have to stay within narrow boundaries, determined by its savers. For example, if the bank receives credit for 5%, it would be suicidal for it to lend it for less. Since its savers are willing to part with the money for a time, it cannot demand much higher rates to its debtors or its savers could lend it directly.		If a bank would not expand its reserves, it could lend only the money of its savers and its own capital. It would be simply a financial middleman. To stay profitable in a free market, it would have to stay within narrow boundaries, determined by its savers. For example, if the bank receives credit for 5%, it would be suicidal for it to lend it for less. Since its savers are willing to part with the money for a time, it cannot demand much higher rates to its debtors or its savers could lend it directly.

	But [[Fractional reserve banking\|Fractional Reserve Banks]] can produce money substitutes essentially for free and give credit at better rates.<ref name="Hulsmann_banking_natural">Jörg Guido Hülsmann. [~~http~~://~~www.mises~~.org/books/~~moneyproduction.pdf~~ "The Ethics of Money Production"], online version, Chapter 13. The Cultural and Spiritual Legacy of Fiat Inflation p.180, referenced 2009-07-15.</ref>		But [[Fractional reserve banking\|Fractional Reserve Banks]] can produce money substitutes essentially for free and give credit at better rates.<ref name="Hulsmann_banking_natural">Jörg Guido Hülsmann. [https://freecapitalists.org/books/the-ethics-of-money-production/ "The Ethics of Money Production"], online version, Chapter 13. The Cultural and Spiritual Legacy of Fiat Inflation p.180, referenced 2009-07-15.</ref>

	==Lending==		==Lending==
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	==Links==		==Links==
	* [~~http~~://~~mises~~.org/books/~~historyofmoney.pdf~~ History of Money and Banking in the United States: The Colonial Era to World War II] (pdf) by [[Murray N. Rothbard]]		* [https://freecapitalists.org/books/history-of-money-and-banking-in-the-united-states-the-colonial-era-to-world-war-ii/ History of Money and Banking in the United States: The Colonial Era to World War II] (pdf) by [[Murray N. Rothbard]]
	* [~~http~~://~~mises~~.org/books/~~shorthistorypapermoney.pdf~~ A Short History of Paper Money and Banking] (pdf) by William M. Gouge		* [https://freecapitalists.org/books/a-short-history-of-paper-money-and-banking/ A Short History of Paper Money and Banking] (pdf) by William M. Gouge
	* [~~http~~://~~www.mises~~.org/books/~~freebanking.pdf~~ Free Banking: Theory, History and a Laissez-Faire Model] (pdf) by Larry J. Sechrest		* [https://freecapitalists.org/books/free-banking-theory-history-and-a-laissez-faire-model/ Free Banking: Theory, History and a Laissez-Faire Model] (pdf) by Larry J. Sechrest
	* Wikipedia on [[Wikipedia:Bank\|bank]]s and [[Wikipedia:History of banking\|history of banking]]		* Wikipedia on [[Wikipedia:Bank\|bank]]s and [[Wikipedia:History of banking\|history of banking]]

	==References==		==References==
	{{Reflist}}		{{Reflist}}

ArchiveBot: Repoint 3 dead mises.org links to the archived original (automated; see Austrian Economics Wiki:Link repointing)

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Repoint 3 dead mises.org links to the archived original (automated; see Austrian Economics Wiki:Link repointing)

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	<!--		<!--
	In the early history of banking there were banks whose only operation consisted in issuing money-certificates, in effect warehouses of money.<ref name="Goods">Ludwig von Mises. [~~http~~://mises.org/humanaction/chap17sec12.asp "12. The Limitation on the Issuance of Fiduciary Media"], ''Chapter XVII. Indirect exchange'', [[Wikipedia:Human Action\|Human Action]] online edition, referenced 2009-06-05.</ref>		In the early history of banking there were banks whose only operation consisted in issuing money-certificates, in effect warehouses of money.<ref name="Goods">Ludwig von Mises. [https://mises.freecapitalists.org/humanaction/chap17sec12.asp "12. The Limitation on the Issuance of Fiduciary Media"], ''Chapter XVII. Indirect exchange'', [[Wikipedia:Human Action\|Human Action]] online edition, referenced 2009-06-05.</ref>
	-->		-->

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	{{Main\|Banknote}}		{{Main\|Banknote}}

	Banks issue banknotes. Historically, they were [[money]] substitutes, that the bank was prepared to exchange free of charge against money proper.<ref name="Mises_banknote">Ludwig von Mises. [~~http~~://mises.org/humanaction/chap17sec11.asp "11. The Money-Substitutes"], ''[[Human Action]]'', online version, Chapter XVII. Indirect Exchange, referenced 2009-06-29.</ref> With [[Fiat Money\|paper money]], a banknote is a promise to the same amount of paper money.<ref name="Hulsmann_paper_banknote">Jörg Guido Hülsmann. [http://www.mises.org/books/moneyproduction.pdf "The Ethics of Money Production"], online version, Chapter 12. Paper Money p.162, referenced 2009-06-30.</ref>		Banks issue banknotes. Historically, they were [[money]] substitutes, that the bank was prepared to exchange free of charge against money proper.<ref name="Mises_banknote">Ludwig von Mises. [https://mises.freecapitalists.org/humanaction/chap17sec11.asp "11. The Money-Substitutes"], ''[[Human Action]]'', online version, Chapter XVII. Indirect Exchange, referenced 2009-06-29.</ref> With [[Fiat Money\|paper money]], a banknote is a promise to the same amount of paper money.<ref name="Hulsmann_paper_banknote">Jörg Guido Hülsmann. [http://www.mises.org/books/moneyproduction.pdf "The Ethics of Money Production"], online version, Chapter 12. Paper Money p.162, referenced 2009-06-30.</ref>

	==Fractional Reserve Banking==		==Fractional Reserve Banking==
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	Contemporary commercial banks combine two essentially different functions. First, they serve as intermediaries between savers and investors. Banks issue a [[debt]] instrument (bonds or commercial paper) to lend the funds to economic agents that need financing. As financial intermediaries, banks pool and channel existing savings. This implies specific risks ([[credit]], [[interest]], currency, etc.) that banks may be willing to bear wholly, to manage partially or to hedge completely. Because the loans that banks make come from actual wealth that is only transferred from one individual to another, one can speak of ''real credit''. Real credit is the foundation of capital accumulation and [[economic growth]].		Contemporary commercial banks combine two essentially different functions. First, they serve as intermediaries between savers and investors. Banks issue a [[debt]] instrument (bonds or commercial paper) to lend the funds to economic agents that need financing. As financial intermediaries, banks pool and channel existing savings. This implies specific risks ([[credit]], [[interest]], currency, etc.) that banks may be willing to bear wholly, to manage partially or to hedge completely. Because the loans that banks make come from actual wealth that is only transferred from one individual to another, one can speak of ''real credit''. Real credit is the foundation of capital accumulation and [[economic growth]].

	Second, banks act as [[Fractional reserve banking\|fractional-reserve]] depository institutions. This means that they are legally obliged to keep in reserves only a (very small) fraction of money that is deposited with them. The rest of the money can be used for granting credits, i.e., to create an additional deposit that is made available to the receiver of the credit. In addition to channeling existing savings, banks are creating deposits that they lend out. Since such deposits are not brought about by existing savings, one can speak of ''bank credit''. It is precisely their ability to create bank credit through new deposits that makes banks specific and different from other companies. The capacity to create deposits implies the capacity to increase the supply of [[Money\|media of exchange]], for deposits are used as media of exchange.<ref name="Gertchev_Securitization">Nikolay Gertchev . [~~http~~://mises.org/daily/3820 "Securitization and Fractional-Reserve Banking"], Mises Daily,posted on Thursday, November 12, 2009, referenced 2009-11-14.</ref>		Second, banks act as [[Fractional reserve banking\|fractional-reserve]] depository institutions. This means that they are legally obliged to keep in reserves only a (very small) fraction of money that is deposited with them. The rest of the money can be used for granting credits, i.e., to create an additional deposit that is made available to the receiver of the credit. In addition to channeling existing savings, banks are creating deposits that they lend out. Since such deposits are not brought about by existing savings, one can speak of ''bank credit''. It is precisely their ability to create bank credit through new deposits that makes banks specific and different from other companies. The capacity to create deposits implies the capacity to increase the supply of [[Money\|media of exchange]], for deposits are used as media of exchange.<ref name="Gertchev_Securitization">Nikolay Gertchev . [https://mises.freecapitalists.org/daily/3820 "Securitization and Fractional-Reserve Banking"], Mises Daily,posted on Thursday, November 12, 2009, referenced 2009-11-14.</ref>

	{{See also\|Inflation}}		{{See also\|Inflation}}

Pestergaines: /* History of Banking */ moved link

2012-06-08T18:08:36Z

History of Banking: moved link

← Older revision		Revision as of 18:08, 8 June 2012
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	==History of Banking==		==History of Banking==
			{{See also\|History of money and banking in the US}}
	The first precursors of [[bank]]s can be traced as far back as ancient [[Mesopotamia]], where temples, royal palaces, and some private houses served to store valuable commodities like grain, the ownership of which could be transferred via written receipts. There are records of loans by the temples of [[Babylon]] as early as 2000 BC; temples were considered safe, because they were sacred places watched over by gods, and should be protected from theft. Companies of traders in ancient times provided banking services connected to the buying and selling of goods. Many of these early "protobanks" dealt primarily in coin and bullion, money changing and supplied foreign and domestic coins of the correct weight and fineness.<ref name="Britannica_money">Encyclopedia Britannica. [http://www.britannica.com/EBchecked/topic/389170/money "Money"], referenced 2009-08-09.</ref> Around the year 3300 B.C. the temple of Uruk owned the land it exploited, received offerings and deposits and granted loans to farmers and merchants of livestock and grain, probably the first bank in history. The term banker originated in Florence, where bankers were called either ''banchieri'' or ''tavolieri'', because they worked sitting behind a bench (''banco'') or table (''tavola'').<ref name="De_Soto_Banking">[[Jesús Huerta de Soto]]. ''[[Money, Bank Credit, and Economic Cycles]]''. 2. Historical Violations of the Legal Principles Governing the Monetary Irregular-Deposit Contract, p. 40-41, referenced 2009-10-29.</ref>		The first precursors of [[bank]]s can be traced as far back as ancient [[Mesopotamia]], where temples, royal palaces, and some private houses served to store valuable commodities like grain, the ownership of which could be transferred via written receipts. There are records of loans by the temples of [[Babylon]] as early as 2000 BC; temples were considered safe, because they were sacred places watched over by gods, and should be protected from theft. Companies of traders in ancient times provided banking services connected to the buying and selling of goods. Many of these early "protobanks" dealt primarily in coin and bullion, money changing and supplied foreign and domestic coins of the correct weight and fineness.<ref name="Britannica_money">Encyclopedia Britannica. [http://www.britannica.com/EBchecked/topic/389170/money "Money"], referenced 2009-08-09.</ref> Around the year 3300 B.C. the temple of Uruk owned the land it exploited, received offerings and deposits and granted loans to farmers and merchants of livestock and grain, probably the first bank in history. The term banker originated in Florence, where bankers were called either ''banchieri'' or ''tavolieri'', because they worked sitting behind a bench (''banco'') or table (''tavola'').<ref name="De_Soto_Banking">[[Jesús Huerta de Soto]]. ''[[Money, Bank Credit, and Economic Cycles]]''. 2. Historical Violations of the Legal Principles Governing the Monetary Irregular-Deposit Contract, p. 40-41, referenced 2009-10-29.</ref>

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	In the early history of banking there were banks whose only operation consisted in issuing money-certificates, in effect warehouses of money.<ref name="Goods">Ludwig von Mises. [http://mises.org/humanaction/chap17sec12.asp "12. The Limitation on the Issuance of Fiduciary Media"], ''Chapter XVII. Indirect exchange'', [[Wikipedia:Human Action\|Human Action]] online edition, referenced 2009-06-05.</ref>		In the early history of banking there were banks whose only operation consisted in issuing money-certificates, in effect warehouses of money.<ref name="Goods">Ludwig von Mises. [http://mises.org/humanaction/chap17sec12.asp "12. The Limitation on the Issuance of Fiduciary Media"], ''Chapter XVII. Indirect exchange'', [[Wikipedia:Human Action\|Human Action]] online edition, referenced 2009-06-05.</ref>
	-->		-->
	~~{{See also\|History of money and banking in the US}}~~

	==Banknotes==		==Banknotes==

Pestergaines: /* History of Banking */ Expanded history.

2012-06-08T18:08:06Z

History of Banking: Expanded history.

← Older revision		Revision as of 18:08, 8 June 2012
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	==History of Banking==		==History of Banking==
			The first precursors of [[bank]]s can be traced as far back as ancient [[Mesopotamia]], where temples, royal palaces, and some private houses served to store valuable commodities like grain, the ownership of which could be transferred via written receipts. There are records of loans by the temples of [[Babylon]] as early as 2000 BC; temples were considered safe, because they were sacred places watched over by gods, and should be protected from theft. Companies of traders in ancient times provided banking services connected to the buying and selling of goods. Many of these early "protobanks" dealt primarily in coin and bullion, money changing and supplied foreign and domestic coins of the correct weight and fineness.<ref name="Britannica_money">Encyclopedia Britannica. [http://www.britannica.com/EBchecked/topic/389170/money "Money"], referenced 2009-08-09.</ref> Around the year 3300 B.C. the temple of Uruk owned the land it exploited, received offerings and deposits and granted loans to farmers and merchants of livestock and grain, probably the first bank in history. The term banker originated in Florence, where bankers were called either ''banchieri'' or ''tavolieri'', because they worked sitting behind a bench (''banco'') or table (''tavola'').<ref name="De_Soto_Banking">[[Jesús Huerta de Soto]]. ''[[Money, Bank Credit, and Economic Cycles]]''. 2. Historical Violations of the Legal Principles Governing the Monetary Irregular-Deposit Contract, p. 40-41, referenced 2009-10-29.</ref>

	~~The first banks were probably the religious temples of the ancient world.~~
	<!--		<!--
	In the early history of banking there were banks whose only operation consisted in issuing money-certificates, in effect warehouses of money.<ref name="Goods">Ludwig von Mises. [http://mises.org/humanaction/chap17sec12.asp "12. The Limitation on the Issuance of Fiduciary Media"], ''Chapter XVII. Indirect exchange'', [[Wikipedia:Human Action\|Human Action]] online edition, referenced 2009-06-05.</ref>		In the early history of banking there were banks whose only operation consisted in issuing money-certificates, in effect warehouses of money.<ref name="Goods">Ludwig von Mises. [http://mises.org/humanaction/chap17sec12.asp "12. The Limitation on the Issuance of Fiduciary Media"], ''Chapter XVII. Indirect exchange'', [[Wikipedia:Human Action\|Human Action]] online edition, referenced 2009-06-05.</ref>

Pesterbot: /* Links */External Links to Links, replaced: ==External links== → ==Links==

2011-06-21T19:36:51Z

Links: External Links to Links, replaced: ==External links== → ==Links==

← Older revision		Revision as of 19:36, 21 June 2011
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	{{See also\|Inflation}}		{{See also\|Inflation}}

	==~~External links~~==		==Links==
	* [http://mises.org/books/historyofmoney.pdf History of Money and Banking in the United States: The Colonial Era to World War II] (pdf) by [[Murray N. Rothbard]]		* [http://mises.org/books/historyofmoney.pdf History of Money and Banking in the United States: The Colonial Era to World War II] (pdf) by [[Murray N. Rothbard]]
	* [http://mises.org/books/shorthistorypapermoney.pdf A Short History of Paper Money and Banking] (pdf) by William M. Gouge		* [http://mises.org/books/shorthistorypapermoney.pdf A Short History of Paper Money and Banking] (pdf) by William M. Gouge

Pestergaines: 14 revisions: Importing pages from Autrian Economics Wiki.

2010-11-06T08:20:55Z

14 revisions: Importing pages from Autrian Economics Wiki.

← Older revision		Revision as of 08:20, 6 November 2010
(No difference)

Pestergaines: /* Lending */ Internalized link to Debt.

2010-06-05T21:20:27Z

Lending: Internalized link to Debt.

← Older revision		Revision as of 21:20, 5 June 2010
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	==Lending==		==Lending==
	Contemporary commercial banks combine two essentially different functions. First, they serve as intermediaries between savers and investors. Banks issue a debt instrument (bonds or commercial paper) to lend the funds to economic agents that need financing. As financial intermediaries, banks pool and channel existing savings. This implies specific risks ([[credit]], [[interest]], currency, etc.) that banks may be willing to bear wholly, to manage partially or to hedge completely. Because the loans that banks make come from actual wealth that is only transferred from one individual to another, one can speak of ''real credit''. Real credit is the foundation of capital accumulation and [[economic growth]].		Contemporary commercial banks combine two essentially different functions. First, they serve as intermediaries between savers and investors. Banks issue a [[debt]] instrument (bonds or commercial paper) to lend the funds to economic agents that need financing. As financial intermediaries, banks pool and channel existing savings. This implies specific risks ([[credit]], [[interest]], currency, etc.) that banks may be willing to bear wholly, to manage partially or to hedge completely. Because the loans that banks make come from actual wealth that is only transferred from one individual to another, one can speak of ''real credit''. Real credit is the foundation of capital accumulation and [[economic growth]].

	Second, banks act as [[Fractional reserve banking\|fractional-reserve]] depository institutions. This means that they are legally obliged to keep in reserves only a (very small) fraction of money that is deposited with them. The rest of the money can be used for granting credits, i.e., to create an additional deposit that is made available to the receiver of the credit. In addition to channeling existing savings, banks are creating deposits that they lend out. Since such deposits are not brought about by existing savings, one can speak of ''bank credit''. It is precisely their ability to create bank credit through new deposits that makes banks specific and different from other companies. The capacity to create deposits implies the capacity to increase the supply of [[Money\|media of exchange]], for deposits are used as media of exchange.<ref name="Gertchev_Securitization">Nikolay Gertchev . [http://mises.org/daily/3820 "Securitization and Fractional-Reserve Banking"], Mises Daily,posted on Thursday, November 12, 2009, referenced 2009-11-14.</ref>		Second, banks act as [[Fractional reserve banking\|fractional-reserve]] depository institutions. This means that they are legally obliged to keep in reserves only a (very small) fraction of money that is deposited with them. The rest of the money can be used for granting credits, i.e., to create an additional deposit that is made available to the receiver of the credit. In addition to channeling existing savings, banks are creating deposits that they lend out. Since such deposits are not brought about by existing savings, one can speak of ''bank credit''. It is precisely their ability to create bank credit through new deposits that makes banks specific and different from other companies. The capacity to create deposits implies the capacity to increase the supply of [[Money\|media of exchange]], for deposits are used as media of exchange.<ref name="Gertchev_Securitization">Nikolay Gertchev . [http://mises.org/daily/3820 "Securitization and Fractional-Reserve Banking"], Mises Daily,posted on Thursday, November 12, 2009, referenced 2009-11-14.</ref>

Pestergaines: Internalized link to Economic growth.

2010-02-14T14:20:40Z

Internalized link to Economic growth.

← Older revision		Revision as of 14:20, 14 February 2010
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	==Lending==		==Lending==
	Contemporary commercial banks combine two essentially different functions. First, they serve as intermediaries between savers and investors. Banks issue a debt instrument (bonds or commercial paper) to lend the funds to economic agents that need financing. As financial intermediaries, banks pool and channel existing savings. This implies specific risks ([[credit]], [[interest]], currency, etc.) that banks may be willing to bear wholly, to manage partially or to hedge completely. Because the loans that banks make come from actual wealth that is only transferred from one individual to another, one can speak of ''real credit''. Real credit is the foundation of capital accumulation and economic growth.		Contemporary commercial banks combine two essentially different functions. First, they serve as intermediaries between savers and investors. Banks issue a debt instrument (bonds or commercial paper) to lend the funds to economic agents that need financing. As financial intermediaries, banks pool and channel existing savings. This implies specific risks ([[credit]], [[interest]], currency, etc.) that banks may be willing to bear wholly, to manage partially or to hedge completely. Because the loans that banks make come from actual wealth that is only transferred from one individual to another, one can speak of ''real credit''. Real credit is the foundation of capital accumulation and [[economic growth]].

	Second, banks act as [[Fractional reserve banking\|fractional-reserve]] depository institutions. This means that they are legally obliged to keep in reserves only a (very small) fraction of money that is deposited with them. The rest of the money can be used for granting credits, i.e., to create an additional deposit that is made available to the receiver of the credit. In addition to channeling existing savings, banks are creating deposits that they lend out. Since such deposits are not brought about by existing savings, one can speak of ''bank credit''. It is precisely their ability to create bank credit through new deposits that makes banks specific and different from other companies. The capacity to create deposits implies the capacity to increase the supply of [[Money\|media of exchange]], for deposits are used as media of exchange.<ref name="Gertchev_Securitization">Nikolay Gertchev . [http://mises.org/daily/3820 "Securitization and Fractional-Reserve Banking"], Mises Daily,posted on Thursday, November 12, 2009, referenced 2009-11-14.</ref>		Second, banks act as [[Fractional reserve banking\|fractional-reserve]] depository institutions. This means that they are legally obliged to keep in reserves only a (very small) fraction of money that is deposited with them. The rest of the money can be used for granting credits, i.e., to create an additional deposit that is made available to the receiver of the credit. In addition to channeling existing savings, banks are creating deposits that they lend out. Since such deposits are not brought about by existing savings, one can speak of ''bank credit''. It is precisely their ability to create bank credit through new deposits that makes banks specific and different from other companies. The capacity to create deposits implies the capacity to increase the supply of [[Money\|media of exchange]], for deposits are used as media of exchange.<ref name="Gertchev_Securitization">Nikolay Gertchev . [http://mises.org/daily/3820 "Securitization and Fractional-Reserve Banking"], Mises Daily,posted on Thursday, November 12, 2009, referenced 2009-11-14.</ref>

Pestergaines: On banks and lending.

2009-11-14T23:39:51Z

On banks and lending.

← Older revision		Revision as of 23:39, 14 November 2009
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	* settlement of payments		* settlement of payments
	* lending [[money]]		* lending [[money]]
	* currency exchange		* [[currency]] exchange

	==History of Banking==		==History of Banking==
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	But [[Fractional reserve banking\|Fractional Reserve Banks]] can produce money substitutes essentially for free and give credit at better rates.<ref name="Hulsmann_banking_natural">Jörg Guido Hülsmann. [http://www.mises.org/books/moneyproduction.pdf "The Ethics of Money Production"], online version, Chapter 13. The Cultural and Spiritual Legacy of Fiat Inflation p.180, referenced 2009-07-15.</ref>		But [[Fractional reserve banking\|Fractional Reserve Banks]] can produce money substitutes essentially for free and give credit at better rates.<ref name="Hulsmann_banking_natural">Jörg Guido Hülsmann. [http://www.mises.org/books/moneyproduction.pdf "The Ethics of Money Production"], online version, Chapter 13. The Cultural and Spiritual Legacy of Fiat Inflation p.180, referenced 2009-07-15.</ref>

			==Lending==
			Contemporary commercial banks combine two essentially different functions. First, they serve as intermediaries between savers and investors. Banks issue a debt instrument (bonds or commercial paper) to lend the funds to economic agents that need financing. As financial intermediaries, banks pool and channel existing savings. This implies specific risks ([[credit]], [[interest]], currency, etc.) that banks may be willing to bear wholly, to manage partially or to hedge completely. Because the loans that banks make come from actual wealth that is only transferred from one individual to another, one can speak of ''real credit''. Real credit is the foundation of capital accumulation and economic growth.

			Second, banks act as [[Fractional reserve banking\|fractional-reserve]] depository institutions. This means that they are legally obliged to keep in reserves only a (very small) fraction of money that is deposited with them. The rest of the money can be used for granting credits, i.e., to create an additional deposit that is made available to the receiver of the credit. In addition to channeling existing savings, banks are creating deposits that they lend out. Since such deposits are not brought about by existing savings, one can speak of ''bank credit''. It is precisely their ability to create bank credit through new deposits that makes banks specific and different from other companies. The capacity to create deposits implies the capacity to increase the supply of [[Money\|media of exchange]], for deposits are used as media of exchange.<ref name="Gertchev_Securitization">Nikolay Gertchev . [http://mises.org/daily/3820 "Securitization and Fractional-Reserve Banking"], Mises Daily,posted on Thursday, November 12, 2009, referenced 2009-11-14.</ref>

			{{See also\|Inflation}}

	==External links==		==External links==

Pestergaines: Moved reference.

2009-11-08T17:10:39Z

Moved reference.

← Older revision		Revision as of 17:10, 8 November 2009
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	==Fractional Reserve Banking==		==Fractional Reserve Banking==
	{{Main\|Fractional reserve banking}}		{{Main\|Fractional reserve banking}}
	If a bank would not expand its reserves, it could lend only the money of its savers and its own capital. It would be simply a financial middleman. To stay profitable in a free market, it would have to stay within narrow boundaries, determined by its savers.~~<ref name="Hulsmann_banking_natural">Jörg Guido Hülsmann. [http://www.mises.org/books/moneyproduction.pdf "The Ethics of Money Production"]~~, ~~online version~~, ~~Chapter 13. The Cultural and Spiritual Legacy of Fiat Inflation p~~.~~180~~, ~~referenced 2009-07-15~~.~~</ref>~~		If a bank would not expand its reserves, it could lend only the money of its savers and its own capital. It would be simply a financial middleman. To stay profitable in a free market, it would have to stay within narrow boundaries, determined by its savers. For example, if the bank receives credit for 5%, it would be suicidal for it to lend it for less. Since its savers are willing to part with the money for a time, it cannot demand much higher rates to its debtors or its savers could lend it directly.

	For example, if the bank receives credit for 5%, it would be suicidal for it to lend it for less. Since its savers are willing to part with the money for a time, it cannot demand much higher rates to its debtors or its savers could lend it directly.		But [[Fractional reserve banking\|Fractional Reserve Banks]] can produce money substitutes essentially for free and give credit at better rates.<ref name="Hulsmann_banking_natural">Jörg Guido Hülsmann. [http://www.mises.org/books/moneyproduction.pdf "The Ethics of Money Production"], online version, Chapter 13. The Cultural and Spiritual Legacy of Fiat Inflation p.180, referenced 2009-07-15.</ref>

	But [[Fractional reserve banking\|Fractional Reserve Banks]] can produce money substitutes essentially for free and give credit at better rates.

	==External links==		==External links==