Question

“Do not charge interest on the loans you make to a fellow Israelite, whether you loan money, or food, or anything else.” – Deuteronomy 23:19

What if banks followed this scriptural mandate? If banks continued to make loans but did not charge interest, how would it affect changes in the money supply? How would it affect bank profit? What’s the difference between the money supply and bank profits?

Answer 1

If banks continue to make loans but did not charge the rate of interest on it, then this will increase the level of money supply in the economy because people will increase their demand for loans and this will increase the level of money supplied in the economy. The level of banks profits will decrease becuase rate of interest on loans represents the revenue earned by the banks and if this rate decreases, the level of bank profits will decrease. Money Supply measures the total amount of money supplied in the economy while banks profits represents the difference between rae of interest chanrged by banks on loans and rate of interest provided on the deposits by the banks.