3. Loans, Interest and Banking (BANK)

When money is included in systems models, new configurations are added representing finance. One aspect is illustrated by BANK. Depositors on the left supply money (JD) to the bank storage of money (M). Each dollar given to the bank is tallied in an accounting of dollars (D) representing the bank's deposit account. In proportion to the account, money flows back to the depositors (K2*D) as they withdraw their deposits by writing checks. Also flowing back from the bank to the depositors is interest which is determined by the deposit account and the going interest rate (IN*D).

The bank loans its money in excess of 1E6 cash reserve and receives a higher interest (1I) than the IN which it pays its depositors. Money also goes for costs of bank operations (K3*M). The money in the bank (M) is a balance of the two processes: one, on the left, receiving deposits for which interest is paid, and the other, on the right, making loans for which interest is received. It makes profit by paying less interest to its depositors than it charges its borrowers.

As shown in Figure IV-3a, the money stored in the bank (M) is calculated as the money deposited plus interest on its loans, in deposits paid back, and in interest paid. However, the accounting of the debt owed depositors (D) is kept track of separately. D is not a storage of money; it is a record of the deposit account owed to depositors. The quantity D decreases when the deposits are repaid.

The simulation (Figure IV-3b) represents the start up of a bank. Deposits and the deposit account build up developing a steady stated limited by the number of depositors. The money builds up with deposits. Then if there is a net profit (Figure IV-3b), money goes into exponential growth compounded by successive loans and interests. However, if there is not a net profit, the money spirals downward reaching zero stopping the program with the word "bankrupt" printed.

Triangular shaped Amplifier symbol.

In Figure IV-3a triangular shaped amplifier symbol is used. The symbol is for one or more flows that are driven by a different cause. In the figure, bank money is returned to depositors in proportion to D, the deposits. Another example of the use of the amplifier symbol shows interest earnings flowing to depositors from the bank driven by the product of the interest rate and deposit account (IN*D).

Examples of the Bank model

Banks accept people's deposits to make mortgage loans to finance buying of homes. If you sometimes borrow and also lead money, you fit into this model. Although you may act as if the money you borrowed is yours to spend, you also need to keep track of your debt since you have to pay it back with the interest added on.

"What If" Experimental Problems

  1. What happens to the bank's deposits if the interest rate paid to depositors (IN) goes up? Increase IN to 0.07 and see.

  2. Suppose after your bank has been going ten years, it gets a reputation of being poorly managed and the rate of new deposits goes down to half. What will happen to the bank's money and to its debt? Make JD = 5E4 and run again. What is the effect of further reduction? Make JD 2E4 and rerun.

  3. After ten years the economy in the town goes down, and the bank is unable to make but half its loans. Will it survive if it can keep its depositors? Change the loan income term in the money change equation to the following: X*0.4*LI*M


Howard T. Odum* and Elisabeth C. Odum+
* Dept. of Environmental Engineering Sciences, UF
+ Santa Fe Community College, Gainesville

Center for Environmental Policy, 424 Black Hall
University of Florida, Gainesville, FL, 32611
Copyright 1994

Autorização concedida gentilmente pelos autores para publicação na Internet
Laboratório de Engenharia Ecológica e Informática Aplicada - LEIA - Unicamp
Enrique Ortega
Mileine Furlanetti de Lima Zanghetin
Campinas, SP, 20 de julho de 2007