On the bank's balance sheet, a deposit is a liability. In fact, it's a short-term liability, since most deposits can be withdrawn on short notice. A bank's central business is to borrow short (from depositors) and lend long (to individuals and businesses).
Are you really claiming that a deposit account is NOT an asset for its owner or that a bank's deposit book is NOT considered a liability? That's what "doesn't actually reflect how it works" is suggesting to me?
Yet to contest these two simple facts makes no sense since they are trivial to verify?
Do you own any deposit accounts? Do you consider the money in them to be counted among your assets?
A deposit is not an asset for the bank - it’s a liability - have you ever even looked at the balance sheet of a bank? I even provided a link which demonstrates that deposit accounts are listed as bank liabilities. is There is simply no question on this fact. So to put it simply you’re just wrong.
You’re confusing the concept of a deposit with the funds used to create the account. People who don’t understand basic double entry accounting or banking operations often make this mistake - like the author of the original piece.
Ok so then by your logic, why do banks care about collecting deposits?
Because they need a liability to offset their assets? Ok wildly backwards but sure.
And wait, in your metaphor, where does the $500k asset of cash that a depositor gives a bank (which offsets that liability) go? It’s just fake in your mind?
You don’t own the money you deposit in the banks, the banks do. Through the act of depositing you are lending the banks your money, therefore it’s not your money anymore. They can default on the loan.
reply