Yinko
Well-known member
You bring up fractional reserve as an argument for why there cannot be more debt than assets, but fractional reserve is the entire reason you can do have more. Fraction reserve means that the bank can leverage 10% assets for 90% debt, so even on the first level you end up with more debt than the account holds. But then, you can actually leverage it again, and get a 20:1 ratio of assets to debt.No, they are required to hold onto very specific classes of liquid assets up to a certain fraction of the deposits made, almost all need to hold onto some amount of hard cash for withdraws, and "truly" negative accounts are technically illegal. The regulations are designed to make it fully illegal for banks to increase the money supply. What fractional reserve banking does is increase liquidity by refusing to allow money people put into savings accounts to actually remain in them, creating the incredible spectacle of debt-based economics we live in today.
When I was studying double-entry bookeeping (never was an accountant but I did study accounting) the answer for how to keep the solution zero if you couldn't think of which category to use was to just make something up. It is a lot less a means of stopping people from hiding their own transactions and more a means of ensuring that people can remember all the transactions they did, because missing stuff is blatant at the end of the fiscal period. In this case, they would probably have gotten the missing funds covered by their insurance or something.Due to the nature of double entry bookeeping assets and liabilities always match. Some other liability - in this case "owner equity" - was invisibly reduced by an equal amount.