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> 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

> 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.

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.