Comments on: Who needs who? http://thelongtailofbanking.com/2009/10/19/who-needs-who/ Covering the emergence of the niche banking movement Thu, 05 Jan 2012 22:31:07 +0000 hourly 1 http://wordpress.com/ By: nichebanking http://thelongtailofbanking.com/2009/10/19/who-needs-who/#comment-18 Tue, 15 Dec 2009 22:29:11 +0000 http://thelongtailofbanking.com/?p=17#comment-18 I’m not a bank CFO so I can’t speak to all the dirty details, but here’s the banking 101 premise: on a bank’s balance sheet, deposits are liabilities. They cost the bank money because the bank has to “buy” them from the customer by paying the customer interest. In contrast, loans are assets because they make the bank money. Sure there are some free checking accounts that banks don’t pay interest on, but for the most part a bank has to buy money from depositors so that it can resell it to borrowers. The difference in the interest rates between the price of buying the money and selling the money is the spread, and that’s the bank’s margin.

]]> By: couchconomist http://thelongtailofbanking.com/2009/10/19/who-needs-who/#comment-12 Tue, 15 Dec 2009 08:01:59 +0000 http://thelongtailofbanking.com/?p=17#comment-12 How do deposits cost the bank money? This is a new concept to me. If, as a depositor, I go into a bank, open an account, and deposit $10,000 they have access to those new funds and can use them to make more money. If they can’t do that they aren’t a very good bank are they?

What do I not understand in this equation?

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