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  • Print publication year: 2019
  • Online publication date: August 2019

10 - Banks Need More Capital, Less Debt

from Part III - Lessons


Banks take deposits – other people’s money – which they use to fund their own activities. Bank deposits are loans by depositors and a form of bank debt, even if most people with checking accounts probably do not think about the fact that they are loaning money to a bank. Deposits are the primary source of funding for most retail banks, which also have other sources of funding, including capital invested by the bank owners or shareholders, and loans from sources other than depositors. Taken together, deposits, other borrowed money, and capital, make up the liabilities side of the bank balance sheet.