re: Where does the money come from when banks loan it out?

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Community banks lend out their deposits and usually have a loan to deposit ratio of less than 100%, so there is no need for them to get financing. The bank also has equity built up, which would allow them to exceed 100%.

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So you're telling us that banks usually keep 100% reserves on their loans unless they have some kind of "equity" built up? So smaller banks have higher reserves? What is this equity?

And what is the current reserve ratio requirement?

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As of October 12, 2012, the Fed required that all banks with more than $79.5 million on deposit maintain of a reserve of 10% of deposits. Banks with less than $79.5 million, but more than $12.4 million (the low reserve tranche), must reserve 3% of all deposits. Banks with less than $12.4 million (the exemption amount) in deposits have a zero percent reserve requirement.

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ETA - I think see your point now, but 10% or no requirement is way "less than 100%"

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OWS or Tea Party?

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Both.

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Sleeping Tiger

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You're out of your intellectual league on this board. Go back to the PT before you hurt yourself.

Speaking of, where the hell has Wiki been?

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Private banks create money out of nothing,

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With your vast professional banking experience, please continue your tutorial...

Lend it out at 5-10%
Pay out 1-3 %


Think about it.

Remember when the Conquistadors robbed all the Gold from the Incas and Mayans?

Well all of that money actually went to a consortium of banks in Ohio and the King of Spain makes every loan in the world from there. It is a little known Internet-verifiable fact.

There's even a song about it.

Banks of the Ohio

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Lend it out at 5-10%
Pay out 1-3 %


Think about it.

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Why do ROAs consistently and almost universally hover around 1.00%? At a 1.00% ROA, how much new interest income less cost of funds less cost of acquiring new interest income less cost of some place to store the paperwork and process payments less cost of regulatory burden less taxes must be produced to replace every dollar loss of bad assets just to get back to breakeven?

Banks profit for three very simple reasons intertwined in a very complex animal: volume, leverage, and fees.... and just like the customers they lend money to, leverage amplifies deteriorating financial condition due to losses just as well as it amplifies financial condition due to profits. You're talking about an industry where interest income barely covers cost of funds and operating expenses. Profits are roughly equal to whatever fee and trading income those institutions can generate.

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Which banks are doing this?

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The bank that I'm starting up first thing in the AM because this whole process sounds cool as hell!