4 ms·

You mean, if a bank lends you money, then you deposit it in the same bank, then they loan it to you again, then you despot it again (or something equivalent) th

• redthrowaway 16y ago
  Not quite. The bank's total reserves must equal at least 10% of their outstanding liabilities, which includes customer savings and checking accounts, in the same way that outstanding gift cards are considered liabilities for retailers. When a bank lends you money, they're really just signing a piece of paper that says, "we've given this person X dollars", thus it counts as a liability, in that somebody could come calling for that money. When you deposit physical cash, the bank gains an asset, ie: that cash. It gains an equal liability, ie: the amount it credits your account. Thus the sum total of the amounts deposited and the amounts loaned must not exceed 10X the amount it either has in its safes, or that it has stored with the central bank.
  • shrikant 16y ago
    When a bank lends you money, they're really just signing a piece of paper that says, "we've given this person X dollars", thus it counts as a liability, in that somebody could come calling for that money. Sorry, does not parse. When the bank lends you money, it's an asset for them. Like you mentioned elsewhere in your comment, deposit accounts are liabilities for the bank, because somebody (the depositor) could come calling for the money.
    • redthrowaway 16y ago
      Let me rephrase that. The money they've promised you is a liability, the money you owe them is an asset. Remember, often when someone takes out a loan, they don't withdraw the money immediately. Until they do, that loan is a liability for the bank.