The Hick family history involves a Scarborough shipping trade that can be traced back at least as far as the mid-eighteenth century. Hick was a middle child, whose older brother Pentland became an entrepreneur and younger sister Shirley had a successful career in social work.
Source Here's a short excerpt from a paper on this subject: Thanks to this exemption they are allowed to keep customer deposits on their own balance sheet.
This means that depositors who deposit their money with a bank are no longer the legal owners of this money. Instead, they are just one of the general creditors of the bank whom it owes money to.
What distinguishes banks from non-banks is their ability to create credit and money through lending, which is accomplished by booking what actually are accounts payable liabilities as imaginary customer deposits, and this is in turn made possible by a particular regulation that renders banks unique: Can you answer it now?
What is the most fundamental difference between your firm and a bank? Yes, banks create money and you can't do that, but there's something even more fundamental than that, something that enables banks to create new money.
Can you think of what it is? It is more similar to eurodollar banking, or carrying bank-like books in a foreign currency, or even in something else, like a wealth asset. Keep imagining you have your own asset management firm, and let's say you're inside the US. If you wanted to carry bank-like books in dollars, you'd need to get a banking license to do so.
But if you hypothetically did so in a foreign currency or gold, there's no such banking license to even be issued. You'd be theoretically acting outside of the purview of that currency's banking authority, and without the safety net of a lender of last resort.
The eurodollar system is a good example. This is from What the World Needs Now: Think about European banks outside of the Federal Reserve System making dollar denominated loans or simply issuing dollar liabilities to FX traders. Sure they have a few physical dollars in reserve.
So if they find themselves short on reserves, they will have to go into the market to buy some dollars, just as you say. Which, in aggregate, could drive up the price of the dollar versus the euro.
It is how they "create money". They create an artificial supply of something by being able to take deposits, lend them out, and keep it all on their own balance sheet.
Say you want to be a rock bank. So you take a deposit of 10 rocks from your neighbor Steve, and you lend those 10 rocks to your other neighbor Gary, who deposits them at your rock bank of course.
You now have two deposits of 10 rocks each on the liability side of your balance sheet, and on the asset side you have a promissory note from Gary as an asset worth 10 rocks, plus your 10 rock reserves.
But Gary might choose to withdraw 9 of his rocks from his account, and then you'll be down to 11 rocks deposited, but only 1 physical rock in your reserves.
See how it works being a bank? And notice, also, that your reserve ratio is out of your control. That's basically what bullion banks do.
They create an artificial supply of gold on their balance sheet. Unallocated account only means that you do not have specific bars attached. Whether it is fractionally reserved or fully reserved is completely separate matter and depends on the contract with BB.
Jeff Christian, who has been working with bullion banks since the 80s, says they are fractionally reserved just like banks. The LBMA is a banking system, not unlike the Federal Reserve System is a banking system, so you can't really say this part is fractionally reserved and that part is not.
The system itself is fractionally reserved. Their own survey of daily turnover amounts to more gold changing hands each day 2, tonnes than is mined in an entire year.
When it's really more like this: Here's a snip from The View: A Classic Bank Run: If that bullion bank then lends that physical to a jewellery company who use it in their operations, then the bullion bank now has an ounce claim asset backing its unallocated ounce liability.
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