The interest rates that banks use is essentially made up out of thin air, most interest rates are based on LIBOR (which has been known to be manipulated, google scandal) and this is the rate that banks charge one another on private markets to borrow from each other.   Also if you notice another thing is that the fundamental premise of banking is simple right?

Bank takes deposits and then they loan the money based on those deposits; but in reality they will loan far beyond what they get from those deposits and they get that money from the federal reserve and borrow it from other banks.  

Since no one bank(except maybe a local bank or credit union) is totally self-sufficient including large ones, they all borrow from one another and that constant borrowing back and forth as well as enough money to sustain keeps banks solvent.  Wouldn't this mean too that this co-dependence and reliance on inter-bank lending theoretically could mean the entire banking system could collapse?

One of the forms that they do this is called 'commercial paper' and in the 2009 recession commercial paper which is exchanged in huge volumes(billions) it started to default and borrowers couldn't it pay it back and this along with the bank's huge losses from derivatives put the entire system at risk of collapse,hence justification for the nearly trillion dollar bailout.  

Fed



Also little known thing, that the fed loans money to private banks at a lower rate than they pay interest; so banks can borrow money from the fed, then put it back in the fed and earn a profit.  

Also one of the things that you learn in economics is that the fed can engage in quantitative easing and other measures where they print money or literally add zeros to the accounts of major banks and buy the government bonds(mostly traded by banks) therefore profiting banks further.

The federal reserve is supposed to serve the public but the reality is that it's a semi-autonomous bank and most of the regional chapters are all headed by bankers and none of the leaders are elected.  

Also who do you think the biggest owner of government debt((bonds,treasuries) is?  It's not China or any foreign government. It's the federal reserve, they own about 40 % of all u.s debt.


The idea of bitcoin is private ownership, you/your computer is your bank account. But there is no decentralization(with small exception) exchange, what if the crypto world went beyond currency and into banking or some other form of system?  Cryptocurrency can never deliver the full dream of privacy/freedom as long as it has to rely directly or indirectly on the banking system.