One may say now that deposits are liabilities as well as borrowings. However, that one should look at where those money come from.
In general, banks receive deposits, and give loans using those deposits. They earn interest rates with loans and pay a portion of the profit as rewards to depositors.
To simplify, let’s ignore the FED funding, bonds and investments – there are multiple ways to create a cashflow.
The new borrowings come from the funding and credit lines by the Federal Reserve. Lacking the people’s money, banks have to replace them to have enough liquidity in order to provide loans and keep earning their interest.
If you compare an average APY (annual percentage yield) the banks offer for savings with the current FED rate, you will have this: 0.25% VS 5.25%.
So, one can see that borrowing from people is 21 TIMES CHEAPER than from the FED.
Where does it lead?
First – rising interest rates for loans, which currently are 10-32% for personal loans and about 7% for mortgages, both at average.
Second – lacking diversification of the liquidity sources. If the banks rely on the State more, then they accordingly are more dependent on the the State.
Given the situation with the recession being predicted, debt ceiling and other macroeconomic problems like investment uncertainty and international trade changes, etc., even a relatively small crisis situation may lead to the big shakes.
And one more thing to think about!
If it happens that banks are no longer intermediaries between the people, helping them to connect and get what they need… And if they now just take money from the State (printed by the FED or tax money one already paid – doesn’t matter) to give them as loans earning additional interest that is higher than before…
Then why that one would need those banks?