Beware of too much sharing - Mary Holm

Saturday 21 August 2004

Q. I was just wondering, what do the banks do with all the money in their coffers when we stop buying houses and bonds and leave it with them instead on fixed deposit because the interest is so good?

A. In many ways, money is just another commodity rather like, let's say, trailers that are towed behind cars.

When you deposit money with a bank, it's as if you

By The Landlord

're letting them use your trailer for a while in exchange for your hiring fee - the interest they pay you.

The bank has a yard full of trailers (deposits). In turn, it hires them out to people who need trailers (mortgages). It charges them a larger hiring fee (mortgage interest) than it gives you, to cover its costs and give it a profit.

What happens if more people want to rent out their trailers to the bank and fewer people want to hire trailers - which is your scenario?


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