Op-Ed: How will banks make money if they don't lend it

In US, Britain and Europe, a number of banks have been bailed out. Let's look at how all this started and where will it take us to.

The principle of a bank is very easy. They 'borrow money' from lots of people in small amounts, generally current accounts, interest bearing accounts, etc. Then they lend it out to other people at a higher rate of interest. The spread between these two plus all the other miscellaneous charges is the income of the bank and from this they deduct their running expenses and then they make a profit. Now, let's look at today. Because of lots of 'bad' debts the banks are being much more careful as to who they lend to and some have arbitrarily stopped lending against houses, cars etc. As other people become more prudent and pay off their loans, and others just give up and hand the assets back to the bank the income flows to the banks become lower and lower, meanwhile their costs of doing business start to increase dramatically as they are forced to write off more and more non performing loans and are forced to sell repossessed assets at prices way below what they were originally written on to their books for. Where will this go? Well, in US, Britain and Europe, a number of banks have either been financially bailed out or partly taken into public control. Here in UAE, there are signs of this beginning to happen too. However, eventually banks will have to start lending again, and they will only get customers if their products are what are needed at an affordable price. One day the banks will remember who makes the money for them, us the customers!