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,


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