4 ms·

When someone opens a bank account and makes a cash deposit, he/she surrenders the legal title to the cash, and it becomes an asset of the bank.

ejstronge 4y ago
> When someone opens a bank account and makes a cash deposit, he/she surrenders the legal title to the cash, and it becomes an asset of the bank. I think this is Google's first hit when one searches this, but I do not believe this is correct. Here is a source saying the opposite, as an example. A liability, in general terms, is something owed to another (e.g., a deposit) https://courses.lumenlearning.com/wm-macroeconomics/chapter/banking-profits-and-losses-name/ https://courses.lumenlearning.com/wm-macroeconomics/chapter/... And another more reputable source: https://www.investopedia.com/terms/b/bank-deposits.asp https://www.investopedia.com/terms/b/bank-deposits.asp
- mytailorisrich 4y ago
  Not sure about banking rules but in general accounting terms: The deposited amount is an asset (the bank has got the cash) and a liability (the bank owes that amount to the person who made the deposit) and neutral on the balance sheet. Edit: Seems that this is what's explained in the investopedia article you linked to: "When someone opens a bank account and makes a cash deposit, he surrenders the legal title to the cash, and it becomes an asset of the bank. In turn, the account is a liability to the bank."
  - ejstronge 4y ago
    Yes, but the OP comment conflated assets (cash and securities as you mention) with FDIC insurance which only concerns liabilities due to depositors who qualify for FDIC insurance.
- nordsieck 4y ago
  > I think this is Google's first hit when one searches this, but I do not believe this is correct. So, I think the person you are responding to is trying to explain the distinction between a bailment and a loan. Let's pretend that someone had a safety deposit box with $1B at SVB. They'd get to keep the full amount, because that is a bailment. The money never becomes the bank's. In contract, if someone deposited $1B at SVB, then the actual money becomes the property of SVB. And the depositor then is a creditor to SVB - they have an unsecured load to SVB of that amount. But after SVB gets taken over by the feds, they have to stand in line with the other creditors and get what they get. They aren't guaranteed to be made whole.
- briandear 4y ago
  The another, more reputable source says exactly what I said. "The deposit itself is a liability owed by the bank to the depositor. Bank deposits refer to this liability rather than to the actual funds that have been deposited. When someone opens a bank account and makes a cash deposit, he surrenders the legal title to the cash, and it becomes an asset of the bank. In turn, the account is a liability to the bank." The ACCOUNT is the liability, the CASH is the asset.
mhuffman 4y ago
For a bank deposits are liabilities and loans are assets. edit: Judging by a quick downvote trigger-finger, there seems to be some folks having trouble believing this; check this out from the source: https://www.federalreserve.gov/releases/h8/current/ https://www.federalreserve.gov/releases/h8/current/ ... look at the category names of where deposits and loans are listed.
- bob1029 4y ago
  The semantics of this are very cumbersome. The deposit itself is not a liability. The deposit account is. There are many ways to get money into a DDA. The bank will never give you your original paper currency back.
  - mhuffman 4y ago
    I agree with everything you say, but at a high level they "owe" you the money that you deposited. Which is a liability. They (generally) are not allowed to just go spend your money on anything they like (in the same way you could if you got a business loan, which is an asset and a liability), but it is prescribed how they can create assets with the deposits.
bell-cot 4y ago
It's an Accounting 101 situation ( https://en.wikipedia.org/wiki/Accounting_equation https://en.wikipedia.org/wiki/Accounting_equation ) - The (say) $100 cash I deposited to the bank becomes both an asset (they have "my" $100 in the vault) and a liability (they own me $100). So the accounting equation still balances.
deleted 4y ago
[deleted]

ejstronge 4y ago

> When someone opens a bank account and makes a cash deposit, he/she surrenders the legal title to the cash, and it becomes an asset of the bank. I think this is Google's first hit when one searches this, but I do not believe this is correct. Here is a source saying the opposite, as an example. A liability, in general terms, is something owed to another (e.g., a deposit) https://courses.lumenlearning.com/wm-macroeconomics/chapter/banking-profits-and-losses-name/ https://courses.lumenlearning.com/wm-macroeconomics/chapter/... And another more reputable source: https://www.investopedia.com/terms/b/bank-deposits.asp https://www.investopedia.com/terms/b/bank-deposits.asp

mytailorisrich 4y ago
Not sure about banking rules but in general accounting terms: The deposited amount is an asset (the bank has got the cash) and a liability (the bank owes that amount to the person who made the deposit) and neutral on the balance sheet. Edit: Seems that this is what's explained in the investopedia article you linked to: "When someone opens a bank account and makes a cash deposit, he surrenders the legal title to the cash, and it becomes an asset of the bank. In turn, the account is a liability to the bank."
- ejstronge 4y ago
  Yes, but the OP comment conflated assets (cash and securities as you mention) with FDIC insurance which only concerns liabilities due to depositors who qualify for FDIC insurance.
nordsieck 4y ago
> I think this is Google's first hit when one searches this, but I do not believe this is correct. So, I think the person you are responding to is trying to explain the distinction between a bailment and a loan. Let's pretend that someone had a safety deposit box with $1B at SVB. They'd get to keep the full amount, because that is a bailment. The money never becomes the bank's. In contract, if someone deposited $1B at SVB, then the actual money becomes the property of SVB. And the depositor then is a creditor to SVB - they have an unsecured load to SVB of that amount. But after SVB gets taken over by the feds, they have to stand in line with the other creditors and get what they get. They aren't guaranteed to be made whole.
briandear 4y ago
The another, more reputable source says exactly what I said. "The deposit itself is a liability owed by the bank to the depositor. Bank deposits refer to this liability rather than to the actual funds that have been deposited. When someone opens a bank account and makes a cash deposit, he surrenders the legal title to the cash, and it becomes an asset of the bank. In turn, the account is a liability to the bank." The ACCOUNT is the liability, the CASH is the asset.

mhuffman 4y ago

For a bank deposits are liabilities and loans are assets. edit: Judging by a quick downvote trigger-finger, there seems to be some folks having trouble believing this; check this out from the source: https://www.federalreserve.gov/releases/h8/current/ https://www.federalreserve.gov/releases/h8/current/ ... look at the category names of where deposits and loans are listed.

bob1029 4y ago
The semantics of this are very cumbersome. The deposit itself is not a liability. The deposit account is. There are many ways to get money into a DDA. The bank will never give you your original paper currency back.
- mhuffman 4y ago
  I agree with everything you say, but at a high level they "owe" you the money that you deposited. Which is a liability. They (generally) are not allowed to just go spend your money on anything they like (in the same way you could if you got a business loan, which is an asset and a liability), but it is prescribed how they can create assets with the deposits.

bell-cot 4y ago

It's an Accounting 101 situation ( https://en.wikipedia.org/wiki/Accounting_equation https://en.wikipedia.org/wiki/Accounting_equation ) - The (say) $100 cash I deposited to the bank becomes both an asset (they have "my" $100 in the vault) and a liability (they own me $100). So the accounting equation still balances.

deleted 4y ago

[deleted]