You have a greater appetite for risk than the bank does. Depending on the jurisdiction, regulators force banks to put their assets into relatively safe loans (insured mortgages, Treasuries, high-grade bonds, etc.) rather than relatively risky equity. We do not want the banking system to collapse if the stock market goes down 15%!
And one reason an individual can have a greater appetite for risk than the bank does, is that the bank is risking other people’s money. If you lose 15% of your savings, that sucks, but it only sucks for you. If the bank loses 15% of everyone’s savings, that is a big problem.
(Yes, there’s deposit insurance … which goes along with regulations on risk.)
You have a greater appetite for risk than the bank does. Depending on the jurisdiction, regulators force banks to put their assets into relatively safe loans (insured mortgages, Treasuries, high-grade bonds, etc.) rather than relatively risky equity. We do not want the banking system to collapse if the stock market goes down 15%!
And one reason an individual can have a greater appetite for risk than the bank does, is that the bank is risking other people’s money. If you lose 15% of your savings, that sucks, but it only sucks for you. If the bank loses 15% of everyone’s savings, that is a big problem.
(Yes, there’s deposit insurance … which goes along with regulations on risk.)