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Banks and non-banks don't treat assets/liabilities in different ways in accounting - banks just engage in transactions most other businesses don't, as a normal
by patmcc 6y ago
Banks and non-banks don't treat assets/liabilities in different ways in accounting - banks just engage in transactions most other businesses don't, as a normal matter of business.
For example - if you're holding someone's money for them, that's a liability - you have to pay it back some time. If someone owes you money, that's an asset - it's worth something. Banks use the cash from liabilities (people's savings accounts) to pay for assets (mortgages) and make money on the spread.
- navaati 6y agoExcept Fractionnal Reserve. It kinda throws off the idea, how do they do then ? Let's see, when they lend money they don't have (which is what it is) they increase the number on your account, that is they create a big liability for themselve. On the other hand they create an asset wich is your debt to them. So accounting-wise, it works out, like theorically I could do that (lending) even if I have €0, it's all paper. But then you're gonna go and empty that account to buy your house, reducing their liability and taking (reducing) their cash instead... that they don't have ! So how does it work ? Does it just work because you don't actually buy houses with bills and coins but with bank transfers, then just shifting the paper magic to another bank ? To be honest I know they can do something my broke self can't, and it has to du with central banks, but what is it exactly ? Something like "if everybody happens to empty their account to cash at the same time, don't worry mate we'll print them bills and give them to you, pinky promise" ?