ENERGY AS IB
IB stands for Inter Banking. Before the Credit Crunch the money creation was also done by the banks though the Inter Banking method. The Inter Banking method delivers a money creation system based on economical growth. Now in many nations (read: in the Western World) economic growth is over and they suffer of economic decline this money creation model is stalled in the overall way. Money creation by loans (the foundation for Inter Bank money creation) only works by growth. IB her effects are reversed (kicking weak banks out into bankruptcy) by economic decline. This is the explanation why banks in the emerging markets of the world still performs very well and banks in the old prosperous markets needs tricks to produce profits and good balances. For understanding the concept of IB, it's crucial to understand the process of money growth (i.e. money creation, market/economy money supply in that currency). As a bank issue a loan the loan is brought up on the balance sheet of the bank. This process is called money creation and is regulated by mainly a equity ratio demand. This is the reason why banks like to place parts of the balance off-balance: to being able to create more money (as in: having more interest generating turn-over). As in growing economies all banks can do this successfully, the money supply grows by this money creation process. How does this work as customers transfer the money of their loans to accounts by other banks? All banks has direct (or by an intermediary bank) accounts by each other and they order the bank of the account holder where the money must go to to write the amount of the account holder and redraw this amount of their own account by that bank. This way banks builds up daily big deposits (or debts) by each other. Once in a while balances are levelled by some third party counter parties (based on value exchange). In times of economic growth this model works fine, it only stalls if one bank make huge loses and by this defaults to its counter parties. But defaulting in a growing economic with the IB system as tool is quite difficult to do, it only happens by management that deliberated steer to bankruptcy after the have robbed their own bank. Bad investments and bad bets can not bring a bank down in an ambiance of economic growth. This changes when economic growth disappears. Than the process of money creation is stalled, the process of money creation stops, the money for the interest payments on existing loans is no longer made by new loans. The weak banks that have been possible to survive due the general economic growth comes into debt by all counter parties to levels that that counter parties not accept new transfers to their account holders on credit. In times of electronic banking rumours about this cause a electronic bank run and the bank defaults and is bailed-out, or taken in receivership by governmental organizations (in the USA this is done by the FDIC), or take over (with governmental support like Bank of America has done by Merrill Lynch, which lead to the Maiden Lane I to V bad asset take overs by the FED), or goes bankrupt (like is happened by Lehman Brothers). What do we see of this in the real economy? Not much: banks punish counterparts when they are more than liked overdue with higher IB interest rates for that bank (as in: go somewhere else, we make IB loaning by us less attractive). These IB rates are not published very much, so we don't see a lot of it. The only thing we see very often is the IBAN (Inter Banking Account Number), which speeds up international money transfer when used as destination account by the sending counter party. The good news for all banks (both in emerging markets as in the old markets) is: energy investments are a growing phenomenon and by this (even in declining economies) it delivers the effects of IB to all banks. If banks in declining economies start to understand this, they will become very active in new energy finance, as this will (partial) bring the huge benefits of banking before the Credit Crunch back into their business model. Banks in old markets will see the benefits of IB and try to install new energy clusters, where most of the money is circulating within their accounts (making IB possible). These clusters will achieve to cover whole chains, from manufacturers to installers and their suppliers and employees. Open Foundation has a tool for banks to realize this. Banks in emerging markets will also understand that new energy investments delivers all the good of IB to their IB system. Energy as IB is a concept capable of generating a massive energy transition investment wave.
Author: Gijs Graafland
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