Banking for beginners


This came in an email which said  it came from a 1957 edition of Punch.

Whether or not it did, it made me smile:
Q: What are banks for? 
A: To make money. 
Q: For the customers? 
A: For the banks. 
Q: Why doesn’t bank advertising mention this? 
A: It would not be in good taste. But it is mentioned by implication in references to reserves of £249,000,000,000 or thereabouts. That is the money they have made. 
Q: Out of the customers? 
A: I suppose so. 
Q: They also mention Assets of £500,000,000,000 or thereabouts. Have they made that too? 
A: Not exactly. That is the money they use to make money. 
Q: I see. And they keep it in a safe somewhere? 
A: Not at all. They lend it to customers. 
Q: Then they haven’t got it? 
A: No. 
Q: Then how is it Assets? 
A: They maintain that it would be if they got it back. 
Q: But they must have some money in a safe somewhere? 
A: Yes, usually £500,000,000, 000 or thereabouts. This is called Liabilities. 
Q: But if they’ve got it, how can they be liable for it? 
A: Because it isn’t theirs. 
Q: Then why do they have it? 
A: It has been lent to them by customers. 
Q: You mean customers lend banks money? 
A: In effect. They put money into their accounts so it is really lent to the banks. 
Q: And what do the banks do with it? 
A: Lend it to other customers. 
Q: But you said that money they lent to other people was Assets? 
A: Yes. 
Q: Then Assets and Liabilities must be the same thing? 
A: You can’t really say that. 
Q: But you’ve just said it! If I put £100 into my account the bank is liable to pay it back, so it’s Liabilities. But they go and lend it to someone else and he is liable to pay it back, so it’s Assets. It’s the same £100 isn’t it? 
A: Yes, but,. 
Q: Then it cancels out. It means, doesn’t it, that banks haven’t really any money at all? 
A: Theoretically. 
Q: Never mind theoretically! And if they haven’t any money, where do they get their Reserves of £249,000,000,000 or thereabouts? ? 
A: I told you. That is the money they have made. 
Q: How? 
A: Well, when they lend your £100 to someone they charge him interest. 
Q: How much? 
A: It depends on the Bank Rate. Say five and a-half percent. That’s their profit. 
Q: Why isn’t it my profit? Isn’t it my money? 
A: It’s the theory of banking practice that all. 
Q: When I lend them my £100 why don’t I charge them interest? 
A: You do. 
Q: You don’t say.. How much? 
A: It depends on the Bank Rate. Say a half percent. 
Q: Grasping of me, rather? 
A: But that’s only if you’re not going to draw the money out again. 
Q: But of course I’m going to draw the money out again! If I hadn’t wanted to draw it out again I could have buried it in the garden! 
A: They wouldn’t like you to draw it out again. 
Q: Why not? If I keep it there you say it’s a Liability. Wouldn’t they be glad if I reduced their Liabilities by removing it? 
A: No. Because if you remove it they can’t lend it to anyone else. 
Q: But if I wanted to remove it they’d have to let me? 
A: Certainly. 
Q: But suppose they’ve already lent it to another customer? 
A: Then they’ll let you have some other customers money. 
Q: But suppose he wants his too and they’ve already let me have it? 
A: You’re being purposely obtuse.
Q: I think I’m being acute. What if everyone wanted their money all at once? 
A: It’s the theory of banking practice that they never would. 
Q: So what banks bank on, is not having to meet their commitments? 

Aust govt to ban mortgage break fees?


The Australian government is considering a ban on mortgage break fees  which ought to be regarded with concern.

Mortgages are contracts and a government that gets between parties in a contract is treading in very dangerous waters.

Banks are being criticised for charging break fees for customers who want to get out of fixed term deals. If the charges were well above the cost there might be grounds for that criticism, but breaking a mortgage incurs expenses for the banks and they are justified in expecting customers to pay reasonable costs associated with backing out of a deal.

Banks have also received criticism for not passing interest rate falls on to people with fixed mortgages, but I have yet to hear anyone suggest that these customers pay more when interest rates rise.

If you agree to a fixed interest loan you gain if interest rates rise and lose if they fall. If you choose to use the floating rate you’ll be able to take advantage of falling rates but have to pay more if they rise.

There is no certainty. People who borrow have to accept the risks which come with it and governments should be very wary about trying to protect them from those risks.

Saturday smiles


A young man with a communications degree was employed by a bank.


One of the first tasks the manager gave him was to draw up instructions for the newly installed drive-through teller machines to enable customers to withdraw cash without leaving their vehicles. 


It took him ages and when the manager asked him why he said it was because he needed two sets of instructions. The first was the procedure for men:


1 Drive up to the cash machine.

2 Put down your car window.

3 Insert card into machine and enter PIN.

4. Enter amount of cash required.

5. Retrieve card, cash and receipt.

6. Put window up.

7. Drive away.


Then the procedure for women which was somewhat more convoluted and went:

1 Drive up to cash machine.

2 Reverse back the required amount to align car window to machine.

3. Put on hand brake.

4. Put window down.

5. Find handbag, tip contents onto passenger seat to locate card.

6. Turn the radio down.

7. Attempt to insert card into machine.

8. Attempt to insert card into machine.

9. Open car door to allow easier access to machine due to its excessive distance from car.

10. Insert card.

11. Reinsert card the right way up.

12. Rifle through contents of handbag to find diary with your PIN written in code on the inside back page.

13. Enter PIN

14.  Press cancel and re-enter correct PIN.

15. Enter amount of cash required.

16. Check make up in rear view mirror.

17. Retrieve card.

18. Empty handbag again to locate wallet and place card inside.

19. Re-check make up.

20. Drive forwards two feet.

21. Reverse back to cash machine

22. Retrieve cash and receipt.

23. Re-empty handbag to locate wallet again and put cash and receipt inside it.

24 Give appropriate hand signal to irate male drivers queuing behind.

25. Restart stalled engine and move forward.

26. Drive a kilometer or two.

27. Release hand brake.


And the manager’s response?


She fired him.

Safer in the Bank


Tough but true talking from Martin Hawes:

More finance companies are likely go under. I do not know which particular ones are most at risk, but I believe this sector is so poor there is not a finance company that I would recommend to a client or invest in myself.

I concede there are some reasonably good finance companies around, although you could count them on the fingers of one hand.

However, the ones that are fairly well- governed and managed, and which have well-diversified loan books (ie the few good ones), still do not pay enough interest over and above what I can get at the bank to attract me as an investor.

There are some very sad stories about people who have lost their life savings through investing in finance companies which have failed, and some have done so on supposedly good advice from supposed experts.

But the buyer should always be beware. There is too much to lose and not enough to gain from taking a higher risk for only slightly more interest from most finance companies than you’d get from a safer option at a bank. 

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