Banking on trust and safety nets
Banks lend the money their customers deposit. But when you use an ATM, where does the money come from?
And what happens if a lot of people withdraw money? Where do banks find the cash?
First of all, banks cannot lend all the money their customers have deposited.
In Hong Kong, for example, authorities require banks to keep a certain amount of reserves. This helps a bank to stay 'liquid'.
Liquidity is the financial term for 'quick cash' or money available easily at no cost.
An international group - the Basel Committee on Banking Supervision - has also issued recommendations to banks on how to handle their money and improve their risk management. Its objective is to enhance the understanding of key decision-making issues and improve the quality of banking supervision worldwide.
For example, the Basel committee recommends how much capital - assets of a business - a bank should have compared to the money they lend and their deposits.
Banks can also make money by lending to other banks.
Banks lend and borrow from each other and from the central bank, which controls a country's monetary policy.
The regulations aim to ensure banking systems stay stable and trustworthy.
