Sep 6

Fed Rejects Bank for Being Too Safe.

Category : Press

“The basic business of banks is to take deposits and make loans. The deposits have to be “risk-free”: A deposit in a bank account ought to be just “money”; depositors shouldn’t have to worry about it. The loans have to be risky: Lending money to people to start businesses or buy houses necessarily comes with the risk that they won’t pay you back. This is the magic, and the problem, of banking — that banks take risky loans and turn them into risk-free deposits — and there are lots of fraught imperfect ways to make it work. The banks diversify their loans and take collateral and monitor their borrowers; they have capital buffers to make sure they’ll still have money even if some loans go bad. ”

Article by Matt Levine,

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