Banks — Emmef / Society / Money

How does a bank work in the modern economy?

A lot of textbooks explain that a bank lends out money from savings. This is not how banking works in reality. As most people associate “savings” strictly with “money in savings accounts”, the explanation is even misleading. However, as the model can be used to describe some interesting properties and can function as a basis for alternative models for banking, I added the textbook example anyway. Fortunately, there are also excellent papers that explain how banks do work.1 This page tries to explain the story in a slightly different way, with less slang if possible. And it will also pinpoint some interesting, inherent problems of the current banking and money system. Where possibe, necessary, the economy lives on a far away and isolated island, yet without violating reality.

W.I.P. The textboo story took sooooo long to finish…