Investing

Candian Median family net worth was $300k!?

  • Last Updated:
  • Jan 23rd, 2018 9:02 am
Deal Fanatic
Mar 24, 2008
5254 posts
1310 upvotes
Toronto
^ yeah and they don't necessarily depend on deposit holders for their borrowing needs, do they. That's my point.
Illegitimi non carborundum
Deal Addict
Oct 6, 2015
1105 posts
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ksgill wrote:
Jan 11th, 2018 8:38 pm
^ yeah and they don't necessarily depend on deposit holders for their borrowing needs, do they. That's my point.
Actually they are fully dependent on savers/depositors for borrowing. Where else would they get the money? Nobody borrows from a bank just to have the money deposited back into the bank. That would be a waste of time. They borrow to buy a car, they borrow to buy a house, they borrow for a vacation. The deposit that ultimately arises from such activity has a different owner, and may not even end up in the same bank -- it must be competed for in the marketplace. Its that competition that sets interest rates.
Deal Fanatic
Mar 24, 2008
5254 posts
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Toronto
I borrow for investing only, maybe that's why my net worth is higher than the median :lol:

But yeah, I understand it's "good" for the economy if people borrow for consumption. It's obviously bad for the society in general but no one cares about that as long as "our" profits are up overall. Face Savouring Delicious Food
Illegitimi non carborundum
Deal Addict
Apr 5, 2016
1831 posts
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Calgary/Vancouver
I don't like you burnt69. You remind me of my econ classes at uni. Face With Tears Of Joy

And he's right. Banks can't issue loans more than their deposits or you're gonna run inflation to crazy levels. This is why it's investment season right now and you see all those promos for savings acct (2%+ for limited time), higher rate GICs. After that, it's mortgage season. If you see a bank that's not very aggressive, you'll know they did bad in investments season.

The rate that bank of canada sets for overnight lending is really just a guideline. No bank will actually borrow from the bank of Canada as it's cheaper to borrow from each other.
Current Fido customer.
Ex Koodo customer. Beware of their tactics.
Member
Dec 13, 2005
207 posts
54 upvotes
Sorry burnt69 you are clearly wrong and misinformed or relying only on your own logic here. Banks play a key role in the creation and destruction of money in our economic system as ksgill explains. Loan initiation by a bank does affect the money supply (creates money) and economic activity. The bank of Canada (not the government) regulates the money supply through bank rate setting and other mechanisms. Your belief that there is a set money supply that circulates between borrowers and creditors is simply not true. I encourage you to take some university level macro-economics courses.
Newbie
Feb 18, 2011
64 posts
4 upvotes
This article is idiotic.

It would make more sense to talk about liquid assets.
Cash and investments. Assets I can turn into cash quite quickly.
Deal Fanatic
Mar 24, 2008
5254 posts
1310 upvotes
Toronto
Have you guys ever heard of a bank declining to loan money because they don't have sufficient deposits to back that loan?
Illegitimi non carborundum
Sr. Member
Jul 19, 2007
723 posts
88 upvotes
Without Real estate, Canadians are worth shit.
Member
Feb 26, 2017
369 posts
103 upvotes
KingKuba wrote:
Jan 12th, 2018 8:35 am
Without Real estate, Canadians are worth shit.
Thank you for your well reasoned argument
Deal Expert
User avatar
Apr 21, 2004
42238 posts
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KingKuba wrote:
Jan 12th, 2018 8:35 am
Without Real estate, Canadians are worth shit.
Without real estate, we would all be in outer space.
Jr. Member
Aug 22, 2012
106 posts
82 upvotes
Mark Town
ksgill wrote:
Jan 12th, 2018 7:07 am
Have you guys ever heard of a bank declining to loan money because they don't have sufficient deposits to back that loan?
Banks won't get into the situation that they have to cancel new loans. However, they will tighten the approval process when they find that they are running of deposits while at the same time advertising higher rates to attract deposit.

The loan/deposit ratio for banks is regulated. If banks do not have sufficient deposit, they will have to borrow from inter-bank market. Banks post excess cash to this market and the highest bidder gets the money. Sometimes during money crunch the interest rate is bid much higher than normal rate.
Deal Addict
Oct 6, 2015
1105 posts
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adavidso wrote:
Jan 12th, 2018 3:10 am
Sorry burnt69 you are clearly wrong and misinformed or relying only on your own logic here.
No, I'm relying on how it actually works in the Canadian banking system. Banks are constrained in the loans they can write by the amount of money they can borrow from the markets, and they have to compete for that money by offering different rates of interest.
Banks play a key role in the creation and destruction of money in our economic system as ksgill explains.
ksgill's claims are incorrect. He claims that the banks 'borrow' money from the government. Central banks certainly can create money, but the Royal Bank, or a CU can't. They have to borrow it from a willing lender, and offer a rate of interest acceptable to the lender.
Loan initiation by a bank does affect the money supply (creates money) and economic activity. The bank of Canada (not the government) regulates the money supply through bank rate setting and other mechanisms. Your belief that there is a set money supply that circulates between borrowers and creditors is simply not true. I encourage you to take some university level macro-economics courses.
I've taken plenty of those courses. Of course the size of the money supply and permissible leverage changes as a function of regulatory and monetary policy. When the OSFI changes, for example, the amount of leverage permitted against a certain asset, that certainly can have systemic effects. But the fact remains, every loan made by a bank must originate in *someone's* savings. As can monetary policy, ie: interest rate targets and liquidity relating to the enforcement of such by central banks. And to the point of this thread, a mortgage loan, while being a debt in the hands of the borrower, is an *asset* in the hands of a saver. Hence, the assets of Canadians devoted to RE is actually much larger than just ownership of RE, it also includes ownership of the debt associated with RE. When you add both, you will find that RE is roughly half of the quoted assets of Canadians.

Likewise, such charts also record debt of the Government of Canada and the provinces as assets in the hands of people who own it, ie: those who have bought savings bonds, GoC bonds, T-Bills, or have done the same through pension, mutual funds, etc. That's good for another $1.5T or so between the federal government and the provinces, mostly held by Canadians.
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Oct 6, 2015
1105 posts
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ksgill wrote:
Jan 12th, 2018 7:07 am
Have you guys ever heard of a bank declining to loan money because they don't have sufficient deposits to back that loan?
Yes. See Home Trust/Oaken Financial last year. They stopped lending because they couldn't borrow on terms that were profitable to lend due to market confidence issues.
Member
Apr 9, 2012
441 posts
100 upvotes
Markham
burnt69 wrote:
Jan 11th, 2018 8:13 pm
Nope. The Canadian government does not lend money to the banks. Savers do.

It is actually considered a sign of profound weakness if a bank has to resort to even taking out a secured loan from the Bank of Canada.



You have a pretty significant misunderstanding of how banking works. If a bank could just borrow all its money at 1% from "the government", why do they bother paying 2% or 3%, or whatever? Why bother with branches, tellers, and all of that, if they could just borrow at 1%? Why bother with the money markets? Private banks are always seeking out sources of funding to make new loans with -- they do not, and cannot create money!
WOW! can't believe KSgill doesn't even know how the banking system works but yet talks about all the investing he does. Good response!

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