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> In fractional reserve banking, money that is loaned out is accounted for as liabilities. Yes, that is how a fractional reserve banking works. But that is not

> In fractional reserve banking, money that is loaned out is accounted for as liabilities. Yes, that is how a fractional reserve banking works. But that is not how the current banking system works. * https://www.stlouisfed.org/publications/page-one-economics/2021/09/17/teaching-the-linkage-between-banks-and-the-fed-r-i-p-money-multiplier https://www.stlouisfed.org/publications/page-one-economics/2... * https://www.pragcap.com/r-i-p-the-money-multiplier/ https://www.pragcap.com/r-i-p-the-money-multiplier/ Banks do not lend out deposits. This was called the "Old View" by Tobin in 1963: * https://elischolar.library.yale.edu/cowles-discussion-paper-series/388/ https://elischolar.library.yale.edu/cowles-discussion-paper-... The Bank of England has a good explainer on how money is created: * https://www.bankofengland.co.uk/quarterly-bulletin/2014/q1/money-creation-in-the-modern-economy https://www.bankofengland.co.uk/quarterly-bulletin/2014/q1/m... See also Cullen Roche: * https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1905625 https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1905625 * https://rationalreminder.ca/podcast/132 https://rationalreminder.ca/podcast/132

notahacker 2y ago
Money that is loaned out is still accounted for as liabilities. Sure, those liabilities are accounted for in an eventually consistent matter by reconciling imbalances on interbank lending markets at the end of the day with the government topping up any systemic shortfall rather than by counting out deposit coins in the vault But that's fundamentally much closer to the "Old Money" view than to the OP's claim about fractional reserve being like an FBO inflating customer deposits by failing to track trades properly. All the credit extended by the bank is accounted for, and all of it that isn't backed by reserves is backed by the bank's obligations to someone else.
- throw0101a 2y ago
  > Money that is loaned out is still accounted for as liabilities. To be clear: * Money is "loaned out" in the sense that a bank credits your account. * Money is not loaned out in the sense that which "goes into" your account did not come out of someone else's account. Rather it was created 'out of thin air' by the bank without reference to anyone else's deposits.
  - notahacker 2y ago
    To be clear: I am familiar with your links, for quite some time actually. I never said that the money came out of someone else's account. What I did say was that it was accounted for as liabilities. It's the bank's liability to the loanee (or their bank), which the bank absolutely can be obliged to pay with reserves or cold hard cash (and it can only get these from borrowing, selling assets or customers paying cash into their account). And so banks lend it out to people attached to a slightly larger liability repayable to them and keep track, because if they don't all this money they're "printing" represents losses in terms of obligations they can't "print" their way out of. That's quite different from the ledger screwup its being compared with, or indeed people creating tokens (not backed by debt or anything else) out of thin air to sell to other people
    - hgomersall 2y ago
      You're going to have to show the balance sheet movements because your wordy description is very woolly.
- nradov 2y ago
  No. Banks classify outstanding loans as assets, not liabilities.
  - notahacker 2y ago
    Yes, the loan is the bank's asset. The deposit created aka "the money" is the bank's liability. I don't think we're in disagreement here. A corollary of this is that contra popular suggestions otherwise, the accounts net to zero and the bank obtains no gain from "printing money", only from interest earned on repayments.

notahacker 2y ago

Money that is loaned out is still accounted for as liabilities. Sure, those liabilities are accounted for in an eventually consistent matter by reconciling imbalances on interbank lending markets at the end of the day with the government topping up any systemic shortfall rather than by counting out deposit coins in the vault But that's fundamentally much closer to the "Old Money" view than to the OP's claim about fractional reserve being like an FBO inflating customer deposits by failing to track trades properly. All the credit extended by the bank is accounted for, and all of it that isn't backed by reserves is backed by the bank's obligations to someone else.

throw0101a 2y ago
> Money that is loaned out is still accounted for as liabilities. To be clear: * Money is "loaned out" in the sense that a bank credits your account. * Money is not loaned out in the sense that which "goes into" your account did not come out of someone else's account. Rather it was created 'out of thin air' by the bank without reference to anyone else's deposits.
- notahacker 2y ago
  To be clear: I am familiar with your links, for quite some time actually. I never said that the money came out of someone else's account. What I did say was that it was accounted for as liabilities. It's the bank's liability to the loanee (or their bank), which the bank absolutely can be obliged to pay with reserves or cold hard cash (and it can only get these from borrowing, selling assets or customers paying cash into their account). And so banks lend it out to people attached to a slightly larger liability repayable to them and keep track, because if they don't all this money they're "printing" represents losses in terms of obligations they can't "print" their way out of. That's quite different from the ledger screwup its being compared with, or indeed people creating tokens (not backed by debt or anything else) out of thin air to sell to other people
  - hgomersall 2y ago
    You're going to have to show the balance sheet movements because your wordy description is very woolly.
nradov 2y ago
No. Banks classify outstanding loans as assets, not liabilities.
- notahacker 2y ago
  Yes, the loan is the bank's asset. The deposit created aka "the money" is the bank's liability. I don't think we're in disagreement here. A corollary of this is that contra popular suggestions otherwise, the accounts net to zero and the bank obtains no gain from "printing money", only from interest earned on repayments.