Its profit in the long run yes. But in short term extra people accumulating debt means less cash floating around the bank to put into other investments.
This can be an actual problem if it someone goes to withdraw their balance and the bank literally doesn’t have money becuse too many of their credit users spent the banks cash.
Nah, that’s what the federal reserve is for.
Banks also need to hold on to cash if you have a massive credit line, even if it’s not used, because they need to be ready to use it. So banks already have reserves to handle increases in demand, and they can close some dormant accounts to free up cash if needed. For example, I have something like $100k in total credit limit across a dozen or so cards, get I only use like $4-5k at a time and pay mine off every month. So I’m taking a disproportionate share of the total credit limit, so banks want to close my cards (and they have closed like 2 in the past year due to lack of use).
It’s not like the banks need to set aside the full $100k that they extend to you on paper … they have to have “assets” of about 1/10th of that …
Fractional reserve banking . Basically just create numbers out of thin air
Sure, they don’t need the full $100k, but they will need to make sure they can cover that full $100k if you end up using it. There’s a lot of statistics behind it, but in general, the higher your credit limit, the more cash they need to keep on hand, and if you’re only using like $100 of that, you’re a much less attractive customer than someone spending $100 on a $1k limit. There’s a cost to that limit, and the banks wants to make a profit from any limit they extend.
Also, fractional reserve banking doesn’t come from “thin air,” they are based on strict regulatory rules and statistics to make sure both the regulators and the bankers are comfortable with the level of risk. If they need additional cash, there are mechanisms for that (e.g. borrowing from other banks at a given interest rate).
