Why you should start your own bank (Punch magazine, 1957)
I stumbled across a reprint from Punch magazine, a British humor rag, from 1957 of a story on the banking system. It’s perhaps more true today than it was in 1957. Sadly, the banking system we have now exists to expropriate from its customers with the sanction of government. Even more sadly, nothing has changed in 50 years. Hopefully we won’t have to wait another 50 for real reform to come.
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 that they have made.
Q: Out of customers?
A: I suppose so.
Q: They also mention Assets of $500,000,000 or thereabouts. Have they made
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?
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 or thereabouts. This is called
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?
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 $100.00 into my account the bank is
liable to have to pay it back, so it’s 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 $100.00, 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?
Q: Never mind theoretically. And if they haven’t 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.
A: Well, when they lend your $100.00 to someone they charge him
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 practice that……
Q: When I lend them my $100.00 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 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 it 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 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?
Q: But suppose they’ve already lent it to another customer?
A: Then they’ll let you have someone else’s money.
Q: But suppose he wants his 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 practice that they never would.
Q: So what banks bank on is not 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 better to go off and open up a bank?
If only it were that easy to hop on the gravy train.