# How banks work ? ?



## richjohnhughes (Sep 24, 2007)

this might be a bit of a daft question but here goes. 

OK, so we know that the banks take our money that we deposit and invest them in other things so they can make money for themselves. 

Also, that they have to have a certain percentage in "cash" to cover the investments etc. 

OK - so how about this.......

when someone transfers say £100,000 from HSBC to the TSB, its just numbers of a screen right? is there any point when they pick up the paper money and move it to the other bank? 

what if the person then takes out the £100,000 cash from the TSB, then the TBS are going to be £100,000 down in real paper money - unless the cash is moved around.


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## richjohnhughes (Sep 24, 2007)

i guess no one knows !!


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## reign (Oct 6, 2008)

lol, you already answered your own question. the part where they have to have a certain percentage in cash to cover investments- bit. 
Right, short answer no with a but, long answer yes with a however.. lol
ok, it's sort of like this: each bank has a certain amount of cash money locked in the safe, put in the drawers for withdrawls, atm machines, etc. And the numbers to keep track of this are all monitored by a computer. Now, in your question, customer A takes £100,000 and bank transfers to TSB. TSB's computer shows the transfer, but the actual cash money is not distributed from bank to bank except in loans. Most paper money is stored safely in the treasury, or is in circulation, or is being destroyed/reprinted.

and i hope someone else can come along and explain this a bit better than I did.


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## richjohnhughes (Sep 24, 2007)

reign said:


> lol, you already answered your own question. the part where they have to have a certain percentage in cash to cover investments- bit.
> Right, short answer no with a but, long answer yes with a however.. lol
> ok, it's sort of like this: each bank has a certain amount of cash money locked in the safe, put in the drawers for withdrawls, atm machines, etc. And the numbers to keep track of this are all monitored by a computer. Now, in your question, customer A takes £100,000 and bank transfers to TSB. TSB's computer shows the transfer, but the actual cash money is not distributed from bank to bank except in loans. Most paper money is stored safely in the treasury, or is in circulation, or is being destroyed/reprinted.
> 
> and i hope someone else can come along and explain this a bit better than I did.


hmmmm - thanks , i think.

the second back would still be out of pocket tho, unless the paper money was moved/


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## reign (Oct 6, 2008)

sort of, but banks have their own deposits/withdrawls from the treasury to replenish their available notes.


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## dreaddan (Mar 9, 2007)

Real money isnt moved - it's only numbers on a computer.
Think of it as lots of IOUs that get cancelled out. 
EG One person may move 100k out of bank A into bank B but there's 10 people who have moved 10k from bank B into bank A so it all balances out (or in theory at least).


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## richjohnhughes (Sep 24, 2007)

dreaddan said:


> Real money isnt moved - it's only numbers on a computer.
> Think of it as lots of IOUs that get cancelled out.
> EG One person may move 100k out of bank A into bank B but there's 10 people who have moved 10k from bank B into bank A so it all balances out (or in theory at least).


thats what i thought aswell

but i'm sure its doesnt always level its self out.

in my example - if someone pulls the cash out (and the other people dont in your example) then the second bank will be down in cash - but not numbers.


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## dreaddan (Mar 9, 2007)

richjohnhughes said:


> thats what i thought aswell
> 
> but i'm sure its doesnt always level its self out.
> 
> in my example - if someone pulls the cash out (and the other people dont in your example) then the second bank will be down in cash - but not numbers.


Your right in theory it should but it wont but the likely hood of them actually settling up is is very slim.

Dan


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## drive 'n' shine (Apr 22, 2006)

If you google videos and look for the one on the US Federal Reserve (money men or monopoly men IRRC) it gives you a sort of insight into how banks work, albeit from a US view but i guess most banking systems work in a similar fashion


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## TriBorG (Feb 14, 2007)

No No I am sure the blue securitor vans move the paper money j/k it is just numbers 

If the Halifax need more cash paper money or coins then they put in a request to the reserve and they get sent the paper money and the ammount comes off the computer 

the Banks get interest on the computer figure money in money markets icelandic bank investments etc !!!

It is kinna like when you make a bank transfer from one account to another they do not phycialy take the money out and move it

I was given 1000 from my parents but needed the money instantly in my account so rather than her making the cheque out to me and me banking it and then waiting for 3-5 days for it to clear she made the cheque out for cash even tho the bank did not give me the cash they had to process the transaction as tho she had taken the money out and given me the Paper money to put in to my account this way it cleared instantly


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## Vyker (Sep 17, 2008)

I might be a bit late with a response here.

But no physical money gets transferred between banks.

The only physical money stored in banks is that to give out, withdrawals and what not.

Some branches have so little money that if you were to walk in wanting £10k out of your account, they might turn you away to give them a day to bring the money in.

HTH


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## kwiker (Oct 23, 2007)

How banks SHOULD work!!!!

http://www.tv.com/video/BIMA5vbTR2e35_HUAcz1XsZ3KEllkVJh/101/4748/first-mattress-bank-9-30-08?o=hulu


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## 1animal1 (Aug 20, 2008)

why is this important


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## parish (Jun 29, 2006)

1animal1 said:


> why is this important


He's trying to work out how profitable a bank robbery will be 

Interesting thread this, and it got me thinking....

Bank notes - at least BoE ones - are actually 'promissory notes' hence _I promise to pay the bearer on demand the sum of X pounds_ printed on them.

Way back in the mists of time when bank notes first appeared, it meant literally that. They were IOUs, or receipts, for silver (hence 'sterling') deposited with the bank and - in theory at least - if you walked into the bank and handed them a one pound note they hand to give you back your silver - one Troy pound weight of it.

Since 'I promise to pay....' is still printed on them would that still hold true today? Obviously you wouldn't get one Troy pound of silver though!


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## dreaddan (Mar 9, 2007)

parish said:


> Since 'I promise to pay....' is still printed on them would that still hold true today? Obviously you wouldn't get one Troy pound of silver though!


Yes it should - as to what you would get is a interesting question.

edit:  You get gold
edit2: Oh - not any more. from  


> What is the Bank's "Promise to Pay"?
> The words "I promise to pay the bearer on demand the sum of five [ten/twenty/fifty] pounds" date from long ago when our notes represented deposits of gold. At that time, a member of the public could exchange one of our banknotes for gold to the same value. For example, a £5 note could be exchanged for five gold coins, called sovereigns. But the value of the pound has not been linked to gold for many years, so the meaning of the promise to pay has changed. Exchange into gold is no longer possible and Bank of England notes can only be exchanged for other Bank of England notes of the same face value. Public trust in the pound is now maintained by the operation of monetary policy, the objective of which is price stability


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## banditbarron (Sep 1, 2007)

Isn't all money ultimately stored as Bullion?

I am sure i read years ago you can actually request your bank to supply your money in bullion (presuming you have enogh lol)


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