Sir Howard Davies, director of the London School of Economics sums up banking perfectly. New banking rules; tread carefully Banks engage in maturity transformation, turning sight deposits [which can be immediately withdrawn without penalty] into long-term loans. This confidence trick depends on just that – confidence. Depositors must believe their money is safe, even if they are dimly aware that if they all wanted to take it out the cash would not be there. The impossibility of creating this illusion is managed through the interbank money market.  Everything is fine so long as people continue to place their hard earned … Continue reading The essence of banking | Howard Davies – LSE