How Do Banks Invest Money From Depositors?

how do banks invest money

How do banks invest money deposited with them by customers? Let us count the ways. They are legion. The starting point is that unless they are monstrously mismanaged, as we have seen they can be, banks almost cannot lose.

How Do Banks Invest Money From Depositors?

The bulk of their non-wholesale funding comes from the general public. Customers deposit money with them in these near zero interest rate days not to invest money but to have the bank safekeep money. Banks invest much of that money in a variety of short-, medium- and long-term instruments.

Only around 10% might be held in cash or near cash (balances with the Bank of England and government paper such as treasury bills and gilt-edged securities). Their counterparts in other countries will follow a similar pattern.

Inching along the spectrum

Broadly speaking, trouble will become more likely the further along the risk/reward spectrum . . . → Read More: How Do Banks Invest Money From Depositors?