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My understanding is that deposits are really just a manifestation of a promise that a trusted party holds, so that the party making the deposit can make more pr
by cuboidGoat 8y ago
My understanding is that deposits are really just a manifestation of a promise that a trusted party holds, so that the party making the deposit can make more promises to other parties. So, in banking a promise is often just as valid as holding a deposit. They aren't really lending you value, they are lending you verification of value.
- cm2187 8y agoThey are unsecured liabilities. But like all liabilities the bank received an asset when it issued it (cash or else), and like all liabilities the bank must have sufficient assets to pay it back on demand. The bank may not have the necessary liquidity to pay back all deposits at once (some of these assets are 30y mortgages) but it has an asset (otherwise is not solvant).