Modern Banking is About Debt

Banking has changed over time. Traditionally, a wealthy individual would deposit his money at a bank for safe-keeping. The financial institution would lend out a portion of the deposits to individuals, businesses and governments. Banks attracted more deposits with higher interest rates. But that is the past.

Central Banks and Federal Reserve System

Originally, most banks were dedicated to local or regional development. After the Great Depression, the “Glass-Steagall Act” placed divisions or walls between banks to ensure that if one bank failed it did not lead to the collapse of the entire system.

In 1999, the “Glass-Steagall Act” was repealed permitting banks to engage in consumer and business lending. It also permitted regional banks to grow into national and international financial institutions. Over time, most nations established a central bank to oversee its economy.

“Debt Runs Modern Banking”

Modern banking has turned into an attempt to monetize assets. A fiat currency permits the Federal Reserve to print “as much money as it wants to in order to stimulate the economy.” “Fractional Reserve Lending” means that a bank must only have a portion of assets on deposit in order to lend out money. This has led to lower interest rates on savings accounts because banks no longer receive as much of their money from the individual or business. Instead, banks get most of their money directly from the Federal Reserve.

Top Banks in the World

JP Morgan Chase was such a powerful bank that it gave a loan to the United States government to save it from financial ruin in 1895. Many consider it to be the bank of the US government to this day. The influence of the largest banks in the world has never been higher. As of April 2013, this is the market capitalization in billions for some powerful banks:

  • Bank of America = $133.2
  • Capital One = $33.64
  • CIBC = $31.98
  • JP Morgan Chase = $187.6
  • RBC = $87.17
  • TD = $75.67
  • Wells Fargo = $200.2

When the Federal Reserve speaks, people listen. These large banks have become more central to economic development around the world. These large financial institutions have “monetized assets” in order to determine the value of commodities, businesses and mortgages. The modern banking sector is driven by the issuance of debt. The more loans that banks can make, the more valuable they will be.