Safe as money in the bank?

Is money in the bank actually that safe?

Did you know that banks play musical chairs with 1 chair and 12 players? They lend out approximately 12 times the amount of money that they have in shareholder investments. Banks play a vital part in our economy but it requires trust from all of us that the music will keep playing.

Most New Zealanders don’t realise that banks survive on a small buffer of shareholder capital. These shareholders have received and expect high returns on their investment. This, in part, has been achieved by increased leverage by the banks. The stability of any bank depends on the quality of the loan book but few people look at the details before depositing their money in the bank. There are many financial commentators that have argued that the Global Financial Crisis (GFC) was largely due to actions done of banks. Things such as banks lending too much and being too leveraged.

To avoid such disasters, in 2018, the Reserve Bank of NZ created a key bank metrics tool to monitor and report the level of risk that banks were exposed to. With this and other information, they publish 6 monthly Financial Stability reports.

It’s a complex topic but if you’d like to read more then check out this article about bank leverage by David Chaston:

If you’d like help with your investments please contact us at Castle Trust Financial Planning.

Your better financial future starts here

Your better financial future starts with a conversation with one of our financial experts. We offer 30 minutes free consultations to help give you peace of mind that we can help you where you need it most.
Book now


Richmond office: 278 Queen Street, Next to the Library
Phone: 03 544 1428
Motueka office: 217 High Street, Opposite Elevations
Phone: 03 528 4184
Castle Trust Financial Planning logo white

© 2024 Castle Trust Financial planning. All Rights Reserved. Disclosure information. Privacy Statement.

chevron-down linkedin facebook pinterest youtube rss twitter instagram facebook-blank rss-blank linkedin-blank pinterest youtube twitter instagram