This is just what good building societies do. Good building societies however claim that they use savers’ money to give loans for mortgages. Everybody is fine with that aren’t they? It’s not a big bad thing is it? The basic premise that the building society keeps enough in reserve to be able to give savers some cash on request, seems to be OK with everybody.

“If you look at your bank statement it says you still have £50,000…” What your bank statement really means is that the bank owes you £50,000. In actual fact the borrower of £40K probably has taken out the same cash you put in that morning. But it’s OK because the paper money is just paper, an IOU, a representation of money.

If I came along the next day and asked for my £50K in cash, the bank would indeed be in trouble. It would have to borrow from the BoE, or become insolvent. This is plainly what happened to Northern Rock when it suffered the bank run in 2007.