Asking the bank why they charge interest (WITH TRANSCRIPT)

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Operator: Hi there, thank you for calling. Your name?
Windsor: Yeah, Windsor Swan.
Operator: Hi, how are you today?
Windsor: I'm good, thank you. How are you?
Operator: Good, thank you.
Windsor: 2065.
Operator: 2065, thank you. And how can I help you?
Windsor: I just had a few questions about the banking system.
Operator: Sure.
Windsor: Credit creation specifically.
Operator: Okay, if you're able to field any of those questions—do you know about credit creation? What are your questions?
Windsor: According to the RBA, credit creation is the way they create broad money in the economy, right?

Operator: The first thing I need to establish is whether this is something that is occurring in your own individual circumstances or whether this is an institutional matter.
Windsor: Institutional matter, definitely.
Operator: Okay, so what's the situation?
Windsor: If that is the case, which I'm sure it is, I'm just wondering what the justification for charging interest on loans is.
Operator: The justification for charging interest on loans?
Windsor: Yeah.
Operator: What loans specifically?
Windsor: Well, let's say a home loan.
Operator: Yes.
Windsor: So you get a home loan, say a million dollars, and that money is created out of thin air. So there's no risk of loss to the bank, correct?
Operator: Well, that is up to—that's the determination of the bank.
Windsor: The bank's what?
Operator: Sorry?
Windsor: That's at the determination of the bank... what?
Operator: If you take out a loan, that’s at the determination of the bank. That’s not up to APRA.
Windsor: Yes, but there's no risk of loss to the bank, correct?
Operator: Again, that is a risk management assessment that is undertaken by the bank.
Windsor: But if they’re not—it's not actually their money, right? We’re saying they’re creating the money.
Operator: Well, I can't make a comment on that, sir.
Windsor: Oh, you're not sure if that's the case?
Operator: I cannot answer a question about whether money is coming out of thin air or not.
Windsor: You can't answer a question about whether the money's coming out of thin air?
Operator: Yeah, I can't answer that question.
Windsor: So you can't deny or confirm it?

Operator: Would you like to maybe submit an online inquiry form to us detailing your situation, and then it could be answered by an appropriate party?
Windsor: It's a systemic, wide-scale question.
Operator: Yeah?
Windsor: It's the whole system, really, not just my personal case. So, sorry—are you saying that it’s not the case that they make credit, or it is the case?
Operator: Money is distributed by the RBA, The Reserve Bank of Australia.
Windsor: Oh, so when a commercial bank makes a loan, that’s not created? There’s no credit creation?
Operator: No, no.
Windsor: Just because I saw on the Reserve Bank of Australia website that they said that is how money is created—how credit is created.
Operator: Right.
Windsor: Christopher Kent had a speech—he’s the Assistant Governor of the RBA—and that’s what he said in 2019.

Operator: Okay. Do you have any follow-up or further questions?
Windsor: Yeah, so, I mean—is Christopher Kent wrong here?
Operator: What I would suggest you do is submit an online inquiry form detailing your question and how you believe it is a systemic issue.
Windsor: It’s not my belief—it’s actually the Assistant Governor of the RBA’s belief.
Operator: Well, you can document that in an email or send that to us in an online inquiry form.
Windsor: But it’s—it could be a systemic issue. So it's best not to just dodge the questions.
Operator: I do need to let you know that you've called through general inquiries.

Windsor: Well, is there a specific inquiry line I can call?
Operator: No, when you need to contact us, you submit an online inquiry form or send us an email.
Windsor: Because he says, "When a bank extends a loan and makes money available to the borrower, the bank may credit the deposit account of the borrower who withdraws the funds. Internally, the bank may directly credit the deposit account of the seller on behalf of the borrower. In either case, the loan funds will find their way to a deposit somewhere. This process adds to the supply of money," right?

Operator: Okay.
Windsor: So if a commercial bank makes a loan to anyone—let’s say for a home loan, a million-dollar home loan—they just credit the account of the borrower. But that money is not drawn from anywhere. That’s what he’s saying—the credit is created. So they’ve just created money, effectively.
Operator: Right.
Windsor: But what I don’t understand is how they could charge interest on that. Because if it’s just purely created money, the bank can’t lose anything because it never gave anything in the first place. So there’s no risk of loss. I don’t understand how they can charge interest on that.
Operator: Have you asked the bank this question themselves at all?
Windsor: Not for a few years, but I’ll get around to that. I just thought I’d start here because it’s APRA’s job to regulate the banks, unless I’m mistaken.
Operator: That is correct, yes.
Windsor: Yeah, so this seems like a bit of an issue to me—charging such high levels of interest if there’s no justification.
Operator: Again, you need to submit an online inquiry form detailing your situation, and then it will be addressed in due course.
Windsor: Well, it’s just such a big problem for the public that I think that’s not really going to cut it. There are lots of people out there living paycheck to paycheck, paying substantial amounts of interest to the bank on their home loans, for what seems to me like no reason at all. It seems like a pretty serious issue.
Operator: Again, your best option is to submit an online inquiry form.

Windsor: And someone will email me back?
Operator: Yes.
Windsor: Do you know how long it might take?
Operator: Emails and online inquiry forms are answered in the order in which they are received.
Windsor: Okay, do you know how long it might take?
Operator: I can’t determine that, sir.
Windsor: Okay, and so they might pursue some sort of regulation process after my inquiry?
Operator: No. The more inquiries we get on similar circumstances, they are logged, and it can be looked into further, yes.
Windsor: Have you heard of anyone complaining about this before?
Operator: Me personally, no.
Windsor: Never?
Operator: No.
Windsor: Does it seem like it could be a serious systemic issue to you?
Operator: Again, I can’t answer that, sir. You need to submit an online inquiry form or send an email.
Windsor: Right, so you’re not actually sure whether credit creation is the—
Operator: As I said, you’ve called through general inquiries today.

Windsor: So I need to submit an email?
Operator: Yes.
Windsor: Well, I hope I’ll hear back soon.
Operator: Yes, we’ll get the ball rolling, and once you send that off, it will be answered in due course.
Windsor: Okay.
Operator: All right, thank you for your call.
Windsor: Thank you for your help.
Operator: Thank you, take care, Windsor.
Windsor: Bye.