Money Money Money: How do banks do it?
Hi, my name is Max and I am a PhD student at the University of Manchester School of Law. I have been a university student for the past 6 years now and I have really enjoyed my experience. University provides you with the opportunity of learning new things, meeting new people, experiencing a new environment, and finding what it is you want to do in life. For me, particularly the last question has always been difficult: it took me a long time to realise what I wanted to do in life, but pursuing a masters degree after my undergraduate degree gave me an idea. I decided to do research in financial services regulation. I will give you an idea of what this entails. It’s all about money.
Financial services significantly affect all members of society. You all use money to pay for different things, such as clothes, shoes, sweets, books etc. If it wasn’t for the financial services industry, money wouldn’t be readily available in the form that we use it today. Let me give you an example:
I imagine that some of you have bank accounts in which you can place your money. You can save money in your bank account and later withdraw it if you decide to spend it. This is referred to as a ‘deposit’, as you deposit your money in your bank account. Your bank can then use this money to create loans to give out to different people. A loan is simply an agreement between a bank and an individual or a company. The bank gives the individual a sum of money and the individual agrees to pay the money back over a certain period of time. For the bank to benefit from this transaction, the individual is required to pay an additional sum of money over the time period. It is up to the individual to decide what to do with the money they receive. They can spend it on clothes, shoes, sweets, books, or something substantially bigger like a car or a house. This bank, therefore, made money readily available to the individual. The money that you deposited is also still available to you. You can withdraw it at any time. All banks put together make up the financial services industry. They are an important part of the money available to us. They significantly influence how money is readily available to all members of society.
This seems like a good thing doesn’t it? Sadly, however, this system comes with its problems. Consider this: what if the individual is unable to repay their loan within the time period agreed upon? What if the bank gives out so many loans that there is no money left for you to withdraw when you want to? How does the bank decide who is suitable to receive a loan? Does the bank use any other means to finance its loans? All of these questions are addressed in financial services regulation. Research in this area essentially tries to make the financial services industry reliable and stable so that money is as readily available as described above. Many of the issues get very complex. It can be very difficult for researchers to keep up with everything that happens in the financial services industry. This is precisely why I believe this to be an interesting research area. New developments arise constantly that require addressing. Different researchers come up with different ways of addressing these issues. I have found myself able to add my own thoughts to this interesting area. It is a very rewarding experience.
Here is a YouTube link to an interesting explanation of banking – https://www.youtube.com/watch?v=CqD3hnjZBTM