Self-Funding the Bank Balance Sheet

Self-Funding the Bank Balance Sheet

The basic business of banking involves advancing loans to customers and accepting deposits from customers. Moorad covers the basic concept of bank self-funding, which is underpinned by the fundamental premise that a bank must actually fund itself, not print money, in order to lend.
Overview

A bank cannot simply print or create its own money in order to lend money. It must actually fund itself in order to lend. Funding the balance sheet requires that a bank has in place a source for obtaining the funds. This can come through three sources; its own funds, its customers deposits or the wholesale market.

Key learning objectives:

  • How does the bank ensure the balance sheet balances?

  • What are the three sources banks can use to raise funds?

  • What happens if a bank cannot raise funds from these sources?

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