How the banking system works
Let's say you place $100 in a savings account with a bank.
The bank takes your savings and creates a derivative by promising to pay you 3 percent for your money.
Then the banking laws allow the bank, via the fractional reserve system, to lend your $100 out in multiples at interest, let's say 10 times at 10 percent interest.
So, the bank pays you $3 for your $100 and lends out $1,000 ($100 x 10) at 10 percent interest.
In this example, the bank earns $100 on $1,000 and pays you $3.
This happens in real life every hour of every day.
The bank takes your savings and creates a derivative by promising to pay you 3 percent for your money.
Then the banking laws allow the bank, via the fractional reserve system, to lend your $100 out in multiples at interest, let's say 10 times at 10 percent interest.
So, the bank pays you $3 for your $100 and lends out $1,000 ($100 x 10) at 10 percent interest.
In this example, the bank earns $100 on $1,000 and pays you $3.
This happens in real life every hour of every day.
