Where Do Banks Get Money To Lend To Borrowers?

where do banks get money to lend to borrowers

Banks are financial companies that are responsible for raising resources in the form of deposits, lending money and offering financial services. Despite being part of the daily life of all citizens, many still do not know how these entities work. For example, where does the money they lend to citizens come from?

First, the bank receives people’s capital through deposits, which can take different forms. This money, through active operations, is put into circulation generating new cash. The bank ratio, which is defined as the percentage of deposits that financial institutions must maintain in the form of legal reserves and which is regulated by the central bank of each country, determines the final capital that will be put into motion.

The main financial products are deposits, made up of checking, savings and term deposits. The first refers to those in which the owner makes funds and domiciliary payments, does not generate interest -or these are very low- and allow him to dispose of the cash by check, cashier or window. The money located in the savings accounts produces a certain profitability, although it offers fewer facilities for making payments and income. Lastly, term deposits immobilize certain amounts for periods of time that, once finalized, produce the return of the capital plus the established interests.

Terms

The current account  is where the owner makes funds and domiciliary payments.

The savings account  produces profitability.

The term deposit  immobilizes an amount for a certain period of time, after which it will be returned with interest.