Ola: I intend opening a bank account.
Uche: You have two accounts already. Why do you want to open another one?
Ola: I want to dedicate that one to saving an amount of money. I heard a global recession is coming.
Uche: The global recession may start in the second half of next year. But let us leave the topic of global recession for now and have a discussion about the bank.
Ola: I actually have a question.
Uche: You may ask.
Ola: What are banks really for?
Uche: Making money.
Ola: For the customers?
Uche: No. For the banks.
Ola: But in almost all of the bank adverts I have watched, they make it seem as if they are doing something wonderful for us and not making money.
Uche: That is how it is.
Ola: The banks have assets right?
Uche: They mention N25 billion as assets.
Ola: Is that the money they have made?
Uche: Not really. It is the money they use to make money.
Ola: Hmm. Where do they keep it?
Uche: They don’t keep it anywhere. They lend it to customers.
Ola: If that is what they do with it then they have not got it.
Ola: Then why is it called Assets?
Uche: They say it would be that if they get it back.
Ola: But they must have it somewhere.
Uche: Yes. N25 billion. They call it Liabilities.
Ola: How can they be liable for it when they have got it.
Uche: Because it is not theirs.
Ola: If it is not theirs, why do they have it?
Uche: Their customers lent it to them.
Ola: You mean customers lend money to banks?
Uche: That is what is done in effect when they put money into their accounts.
Ola: And what do banks do with it?
Uche: They lend it to other customers.
Ola: You mentioned earlier that the money they lend to other people was Assets.
Ola: Are you saying in essence that Assets and Liabilities are the same thing?
Uche: Well, one doesn’t say that.
Ola: But that is what you are saying. If I put N10,000 into my account, the bank is liable to have to pay it back so it’s Liabilities. But they lend it to someone else hoping that the person will pay it back so it’s Assets. It is the same N10,000.
Ola: It cancels out then. The banks really do not have any money.
Ola: Let us forget about theory for now. How do banks make their money?
Uche: They lend your N10,000 to someone and charge the person interest.
Ola: How much?
Uche: It depends on the bank rate which is about 15% now. That is their profit.
Ola: It is my money. It should be my profit. Why is it not?
Uche: The theory of banking
Ola: Forget about theory. When I lend them my N10,000, why don’t I charge them interest?
Uche: You do.
Ola: Really? How much?
Uche: It depends on the bank rate which is about 4% presently.
Ola: Life of me.
Uche: But that is if you do not withdraw the money out again.
Ola: But of course I am going to withdraw. I could have buried it in my backyard if I didn’t want to withdraw again.
Uche: The banks would not like that.
Ola: Why wouldn’t they? You say it is a Liability for them. Wouldn’t they be glad their Liabilities reduced by my withdrawing my money.
Uche: No. Once you withdraw it, they can’t lend it to someone else.
Ola: But if I want to withdraw they would let me have it.
Uche: Almost always.
Ola: What if they have already lent my money to somebody else?
Uche: They will let you have someone else’s money.
Ola: But suppose that someone else wants his money but I already have it?
Uche: Another person’s money will be given to that someone else.
Ola: What if everybody wants their money at once?
Uche: It is the theory of banking that everybody would not want their money at once.
Ola: Wait. Are you saying that banks are banking on not having to meet their commitments?
Uche: I wouldn’t put it like that.
Ola: I think our discussion is enough for today.
Uche: Now run off and go and open your account.
Ola: Actually, I won’t be opening an account again.
Uche: Why not?
Ola: I want to open a bank.
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