[OPE-L:5705] Re: banking

michael perelman (michael@ecst.csuchico.edu)
Tue, 11 Nov 1997 08:36:41 -0800

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Paul Cockshott

> Against whom to banks speculate when they guarantee loans?

I want to take over IBM. I go to the bank and request that they promise to
give me a loan if I get some other people to go along with me in my
takeover. I pay an interest rate on a loan that I might not even use. The
bank does not have to keep any reserves for this loan.

The bank is gambling that I will not need the loan or that it will be
profitable if I do take on the loan. This behavior is speculative. The
potential source of profit comes from me. I am speculating that I can pull
off the deal.

> What assets do they need to cover it?

Banks have reserves to cover their outstanding loans. They do not have
reserves to cover all their so-called off-the-books activities. If a
fraction of the claimants come upon the bank at once, it would have to
Michael Perelman
Economics Department
California State University
Chico, CA 95929
916-898-5901 fax