-Caveat Lector-
The following exchange was published in the British humour magazine,
Punch, on April 3, 1957. It is reprinted here:
________________________________________________________
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 or
thereabouts. That is the money they have made.
Q. Out of customers?
A. I suppose so.
Q. They always mention assets of $500,000,000 or thereabouts.
Have they made that too?
A. Not exactly. That is the money they use to make money.
Q. I see. And (do) they keep it in a safe somewhere?
A. Not at all. They lend it to (their) customers.
Q. Then they haven't got it?
A. No.
Q. Then how is it Assets?
A. They maintain it would be if they got it back.
Q. But they must have some back?
A. Yes, usually about $500,000,000 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 (their) customers.
Q. You mean that 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 banks do with it?
A. Lend it to other customers.
Q. But you said that money 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 have to pay it back, so its
Liabilities. But they go and lend it to someone else,
and he is liable to have to pay it back, so it's Assets.
It's the same $100, isn't it?
Q. Then it cancels out. It means, doesn't it, that banks
haven't any money at all?
A. Theoretically......
Q. Never mind, theoretically. And if they haven't made any
money where do they get their Reserves of $249,000,000 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 per cent.
That's their profit.
Q. Why isn't it my profit? Isn't it my money?
A. It's the theory of banking practise that...
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 half of a per cent.
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 couldn't I?
A. They wouldn't want you to draw it out again.
Q. Why not? If I keep it there you say its 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'd let you have someone else's money.
Q. But suppose he wants his money too...and they've let me
have it?
A. You're being purposely obtuse.
Q. I think I'm being acute. What if everyone wanted their
money at once?
A. It's the theory of banking practise that they never would.
Q. So what banks bank on is never having to meet their
commitments?
A. I wouldn't say that.
Q. Naturally. Well, if there's nothing else you think you
can tell me...?
A. Quite so. Now you can go off and open a banking account.
Q. Just one last question.
A. Of course.
Q. Wouldn't I do a lot better to go off and open up a bank?
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