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Indeed - it's mumbo jumbo. A deposit in a bank is an asset for the holder of the deposit but a liability for the bank. From this simple fact, the author ties

by derriz 6y ago

Indeed - it's mumbo jumbo. A deposit in a bank is an asset for the holder of the deposit but a liability for the bank. From this simple fact, the author ties themselves in linguistic knots of their own confusion.

Godel_unicode 6y ago
It's not mumbo jumbo though, it's the minutiae of banking and it's important. The hypothetical you have posited above doesn't actually reflect how it works. The actual money in the bank is an asset and is owned by the bank. The deposits (claims against that money by it's clients) are the liability. This is the difference, which is important to understanding how banks work, that is misses up thread. You are not lending your money to the bank to hold. They are selling you a future claim on some amount of money from them, possibly (hopefully?) plus some interest against that claim. You will note that the FDIC, when talking about deposit insurance, uses the terms principal and interest. That's because the thing they are insuring is the loan contract between you and the bank. You'll want the "How Bank Deposits Work" section of the below investopedia link. https://www.investopedia.com/terms/b/bank-deposits.asp https://www.investopedia.com/terms/b/bank-deposits.asp https://www.fdic.gov/deposit/deposits/faq.html https://www.fdic.gov/deposit/deposits/faq.html It's similar to the confusion people create with the shorthand "I bought a song from iTunes". No, you bought a license to use that song in a specific set of ways.
- derriz 6y ago
  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? And if you look at Bank of America's balance sheet (https://finance.yahoo.com/quote/BAC/balance-sheet/ https://finance.yahoo.com/quote/BAC/balance-sheet/), and drill into the liabilities list, you'll find the value of all their deposit accounts.
  - Godel_unicode 6y ago
    You should read what I wrote to try and understand it, as opposed to looking for what you expect to see. As I said, from the banks perspective they have an asset (the cash) and an offsetting liability (the deposit account). From the account holders perspective, there is an of course an asset (the title to the account). It's slightly more complicated, as the bank doesn't actually hold your cash as cash. It deploys it in a variety of financial instruments to make money. Go back and read the assets section of that balance sheet more carefully, and you'll see this. The point is that deposit is a technical term with a specific meaning. Namely, it is the agreement between the depositor and the bank that the bank now owes the depositor an amount of money which happens to be equal to the amount of principal deposited plus any accrued interest. If you had any deposit accounts and had thought about how they work, I'm sure you would have worked this out.
    - kinkrtyavimoodh 6y ago
      "The point is that deposit is a technical term with a specific meaning. Namely, it is the agreement between the depositor and the bank that the bank now owes the depositor an amount of money which happens to be equal to the amount of principal deposited plus any accrued interest." I think my point and that of other commenters is that this is self-evident to almost everyone. It is not a confusion, because people's mental model of a bank (I give them money to hold on my behalf, and I can get that money back from them later, and depending on the situation, maybe a little more called interest) actually does represent this reality. Of course it doesn't represent it using the same terms because the terms are technical terms, but it's not clear how the lay person's mental model is wrong.
      - the_other 6y ago
        If I have understood the article correctly, I’m lead to disagree with what you’ve written. I think “most people” believe they get back the same kind of money they pay in. So, if they paid in state money, they’d get state money back. The article says they get “bank money” back.

by derriz 6y ago

Godel_unicode 6y ago

It's not mumbo jumbo though, it's the minutiae of banking and it's important. The hypothetical you have posited above doesn't actually reflect how it works. The actual money in the bank is an asset and is owned by the bank. The deposits (claims against that money by it's clients) are the liability. This is the difference, which is important to understanding how banks work, that is misses up thread. You are not lending your money to the bank to hold. They are selling you a future claim on some amount of money from them, possibly (hopefully?) plus some interest against that claim. You will note that the FDIC, when talking about deposit insurance, uses the terms principal and interest. That's because the thing they are insuring is the loan contract between you and the bank. You'll want the "How Bank Deposits Work" section of the below investopedia link. https://www.investopedia.com/terms/b/bank-deposits.asp https://www.investopedia.com/terms/b/bank-deposits.asp https://www.fdic.gov/deposit/deposits/faq.html https://www.fdic.gov/deposit/deposits/faq.html It's similar to the confusion people create with the shorthand "I bought a song from iTunes". No, you bought a license to use that song in a specific set of ways.

derriz 6y ago
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? And if you look at Bank of America's balance sheet (https://finance.yahoo.com/quote/BAC/balance-sheet/ https://finance.yahoo.com/quote/BAC/balance-sheet/), and drill into the liabilities list, you'll find the value of all their deposit accounts.
- Godel_unicode 6y ago
  You should read what I wrote to try and understand it, as opposed to looking for what you expect to see. As I said, from the banks perspective they have an asset (the cash) and an offsetting liability (the deposit account). From the account holders perspective, there is an of course an asset (the title to the account). It's slightly more complicated, as the bank doesn't actually hold your cash as cash. It deploys it in a variety of financial instruments to make money. Go back and read the assets section of that balance sheet more carefully, and you'll see this. The point is that deposit is a technical term with a specific meaning. Namely, it is the agreement between the depositor and the bank that the bank now owes the depositor an amount of money which happens to be equal to the amount of principal deposited plus any accrued interest. If you had any deposit accounts and had thought about how they work, I'm sure you would have worked this out.
  - kinkrtyavimoodh 6y ago
    "The point is that deposit is a technical term with a specific meaning. Namely, it is the agreement between the depositor and the bank that the bank now owes the depositor an amount of money which happens to be equal to the amount of principal deposited plus any accrued interest." I think my point and that of other commenters is that this is self-evident to almost everyone. It is not a confusion, because people's mental model of a bank (I give them money to hold on my behalf, and I can get that money back from them later, and depending on the situation, maybe a little more called interest) actually does represent this reality. Of course it doesn't represent it using the same terms because the terms are technical terms, but it's not clear how the lay person's mental model is wrong.
    - the_other 6y ago
      If I have understood the article correctly, I’m lead to disagree with what you’ve written. I think “most people” believe they get back the same kind of money they pay in. So, if they paid in state money, they’d get state money back. The article says they get “bank money” back.