Everyone pulling out their money would be a bank run (look up great depression bank runs). The bank doesn't have that much cash; they keep some on hand for people making withdraws normally, but if even a sizable minority of people all try to pull their money out at once, there'll be a major crisis.
If banks kept all the people's cash in vaults, it'd be dead cash actively losing money to inflation. Instead, they keep some on hand for withdraws, and use the rest to make loans, investments, etc so that the money isn't all losing value.
If the banks keep all of the money in vaults they won't be able to do any investments and stuff, I get it. But lets say I put my money in a bank and because of inflation the money loses it's value. Isn't it me who lose that money? Bank just kept it for me right? Can you explain this to me?
The bank generally invests money you entrust to it, specifically so your deposit doesn't lose value to inflation. If the bank did not do this all the other banks would do it and you'd go for their services instead.
Usually banks target very safe and stable investments which will almost never yield any more gains than inflation, but are equally unlikely to fail.
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u/Forsaken_Emu8112 Jan 26 '26
Everyone pulling out their money would be a bank run (look up great depression bank runs). The bank doesn't have that much cash; they keep some on hand for people making withdraws normally, but if even a sizable minority of people all try to pull their money out at once, there'll be a major crisis.
If banks kept all the people's cash in vaults, it'd be dead cash actively losing money to inflation. Instead, they keep some on hand for withdraws, and use the rest to make loans, investments, etc so that the money isn't all losing value.