The Bank Loan Process, Creation and Destruction of Money

Do banks have to retire the principal portion of loans, or do they confiscate this also? I’m pretty clear about the confiscation of interest but the principal I’ve always assumed had to be retired. Thanks

I wouldn’t put it past them to confiscate the principal portion as well. It’s not surprising that banks would recover whatever they can from their borrowers, regardless of whether it is ethical or entirely legal (they will always come back with some obscure loophole if they were contested for such activity). They are managing and storing your money, so if you owe them money, then they supposedly have the right to access your money regardless of your financial situation. Borrow at your own risk…

The payday loan, can help you navigate away from rough financial seas when the money you require is more than what can be remedied with the funds in your bank account. It won’t finance a car, home or college education – it’s typically a loan of just a few hundred dollars. Payday loans are just enough cash to keep your budget afloat between paydays, sans excessive waiting, hassle or negative consequences. Bank loans are really of great help too thus, most of us apply for this.

From June 1st, I believe, the premiums of mortgage loan insurance has increased and will be 15%. I'm in the real estate business and wondering how it is going to effect the business, even though CMHC has confirmed there won't be much change what-so-ever. I'm wondering how that can happen? I'm looking to take up a mortgage and it is undergoing pre approval process from 5 Year Mortgage Rate.com right now, but I'm not sure will I be effected adversely or will it be favorable according to the change.

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they have lost money if a loan is not paid. The money is destroyed in a default, or even if the loan is paid back. The mortgage calculator difference when a borrower defaults is that the bank’s profits have declined by the amount of the loss, text to speech which eventually shows up in the balance sheet as a capital loss. They do care about being paid back. A capital loss is a serious thing.

Banks’ loans aren’t limited by their deposits but they are limited by their capital, both by regulation and prudence.

Now you see why banking is such a good business; they print money!

When you lend existing money you’re creating a new private IOU. So, let’s pretend you have $100 in deposits and you lend that $100 to me. I have your $100 deposit and your NEW $100 loan liability. You have the new $100 loan asset. The problem with this arrangement is that your new $100 loan asset is functionally worthless unless I give you back the actual deposits. You can’t take the Kevlar Paper IOU and go spend it. It’s only good between the two of us. No one else would use it. cpstest

This is what makes banks different from the rest of us. When they create loans they create deposits that ANYONE is willing to use. So, when they create new IOUs those IOUs are trusted, unlike the Kevlar IOU that we created.

I hope that helps.