The Bank of England has published a research report that documents the parasitic activities of large investment banks with surgical precision. Reporting real numbers removes subjectivity from the picture. And the real numbers show that a substantial majority of banking business is “incestuous” - involved in transactions with other financial institutions and only a small amount of banking interacts with the real economy which produces goods and services.
Here is an overview from GEI News
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It was about one year ago that the Bank of England published a research report that documented the well known (but often obscured from view of the broad public) fact that banks create deposits by writing loans with money “created out of thin air” based upon the security of assets lent against. That paper, “Money creation in the modern economy” now has a companion of comparable importance: “Investment banking: linkages to the real economy and the financial system” by Kushal Balluck of the Bank’s Banking and Insurance Analysis Division. This is a clear and complete summary of banking sector activities and an empirical assessment of the money volumes of various banking functions.
The study finds that the revenue of the largest global investment banks is 75% derived from interbank activities and only 25% from activities in the “real economy”. In other words, investment banking is much more about “making money” and much less about “making goods and services” than some may have hear to for thought. Certainly those who proclaim that their bank is “doing God’s work” would want to portray that just the opposite were true, unless, of course, money is their god.
So there is a reason that financial system assets are much larger than global GDP. It’s because many of those assets are unrelated to GDP, which is a measure of the production of goods and services. The relationship of banking to the real economy has been a matter of discussion for some time, especially since the Great Financial Crisis (GFC) of 2008.
