Both you and the bank can create liabilities and use it to buy assets. The difference is the bank’s liabilities (e.g. deposits in a checking account) are genera

Both you and the bank can create liabilities and use it to buy assets. The difference is the bank’s liabilities (e.g. deposits in a checking account) are generally viewed as interchangeable with money. Whereas Steve’s personal IOUs are not. This all comes down to how safe and liquid people view the liabilities. Steve’s IOUs are at substantially higher risk of default than the banks checking account. There’s also not an easy or liquid market or facility for easily converting those IOUs to other money assets. Whereas with a checking account, I can just go to the ATM or send a wire transfer to another bank. With instruments like money market funds, I can easily sell the assets at the push of a button. To a certain extent this is because the central bank guarantees the safety of the bank. Any gaps in a Wells Fargo checking account would just be made up by the Fed making the account holders whole with newly printed dollars. But even absent that guarantee, the senior liabilities and term deposits of banks are considered pretty damn money like. That’s largely because banks as institutions bend over backwards to be as conservative and trustworthy as possible when it comes to their liabilities. A bank would never do the equivalent of spending a years income on a new car. For example Berkshire Hathaway isn’t a bank and it’s not backed by the central bank. But when they issue 30 day commercial paper, then it’s treated as essentially equivalent to money. In fact there’s probably some in your money market fund right now.