Here’s how banking really works

Dear editor,

I was truly gob-smacked by the depth of misunderstandings on banking laboriously detailed in the letter by Ms. Campbell.

Dear editor,

I was truly gob-smacked by the depth of misunderstandings on banking laboriously detailed in the letter by Ms. Campbell (Record, Oct. 28).

While many might agree that banks keep too much of what flows through their hands, it definitely does not work as she describes.

Money is a record of an obligation, and a bank’s business is to catalogue and direct the flow of these transactions. The quoted $225,000 mortgage loan is not the bank’s money; it is the mixed accumulated obligations to others, and they expect to get their money back.

The mortgage represents our collective contributions to pension funds, insurance funds and business accruals awaiting future investments, personal savings, and government tax incomes awaiting dispensation.

The bank gets only a fraction of the quoted interest, because they made the obligation to pay interest on deposits as well as return the original amount, on demand.

The flow of managed wealth is huge, and people can debate endlessly if the fraction kept by banks for their management role is too high, especially as this tiny fraction amounts to very large numbers.

But your $225,000 mortgage came from others so the good people who built your house could be paid now, not after you worked a lifetime to earn that money. You have the obligation to pay it back, with interest.

Of the $149,929.94 you claim as 25 years of bank “revenue,” probably something like $120,000 went as interest payments to old Aunt Alice for her regular pension income to stay alive, and to little Johnny’s teachers and doctors to be paid on schedule, and to farmers so each could rely on getting their crop earnings back each year to pay for new seed, fertilizer and fuel.

Some of that “revenue” was used to fulfill the banks’ obligations to those depositors on behalf of borrowers who failed to pay their mortgages or other loans. And banks do pay taxes, and they do have employees.

The system is not perfect. It is mainly broken in the sense that politicians have promised to do things with other peoples’ money in excess of the peoples’ collective ability or will to pay back these obligations.

Poorly regulated financial institutions mined this government direction to their own greatest advantage, until not enough people were paying back what they had borrowed.

Be thankful that we live with Canada’s system, and not that of Greece, Italy, Spain or even the U.S.A.

David A Kelly,


Get local stories you won't find anywhere else right to your inbox.
Sign up here

Just Posted

With video: 19 Wing Comox home to new fixed-wing search and rescue aircraft

The CC-295 Kingfisher was officially unveiled Friday

Vancouver Island couple’s sheep farm dream disrupted by high lumber price

The solar powered farm project in Sayward will be set back by three years if the lumber price continues to remain high

Valley RCMP still looking for missing man six months after disappearance

John Wesley Edwards (“Wes”) who was last seen in Courtenay on March 20.

Valley RCMP respond to three crashes in one night

If the conditions are less than optimal, drivers are expected to adjust their speed and slow down.

Tour de Rock rolls into the Comox Valley

The tour this year featured alumni riders cycling in their specific geographic area

B.C. records 98 more COVID-19 cases, most in Lower Mainland

One new senior home outbreak, Surrey Memorial outbreak over

Is it time to start thinking about greener ways to package cannabis?

Packaging suppliers are still figuring eco-friendly and affordable packaging options that fit the mandates of Cannabis Regulations

Vancouver Island Tour de Rock riders roll into Parksville Qualicum Beach

Saturday’s schedule includes Port Alberni, Ucluelet and Tofino, followed by Nanaimo on Sunday

2 British Columbians arrested, 3 at large in massive Alberta drug bust

Eight people are facing 33 charges in what police have dubbed Project Incumbent

97 distressed horses, cats and dogs seized from farm in Princeton

RCMP assisted as BC SPCA executed search warrant

Join Black Press Media and Do Some Good

Pay it Forward program supports local businesses in their community giving

$250K reward offered as investigation continues into Sea to Sky Gondola vandalism

Police also asking for specific footage of Sea to Sky highway around time of incident

Trudeau ‘disappointed’ by RCMP treatment of Sikh officers over mask issue

World Sikh Organization of Canada said taking Sikh officers off the front lines constitutes discrimination

Liberals reach deal with NDP on COVID-19 aid bill, likely averting election

NDP and the Liberals have reached an agreement on COVID-19 sick-leave

Most Read