What's stopping a bank creating a special account with infinite fiat and just keeping the totals off book?
Discussion
An account at a bank is a liability of the bank. The bank is liable to present the funds in the account.
To be solvent, the bank’s books have to balance, meaning assets to offset liabilities. When a bank makes a loan, that’s an asset of the bank since the loan yields interest. The bank creates the loan account balance (asset) and the deposits for the demand account (liability) at the same time.
So in effect, the bank does have infinite fiat, it just only comes into being incrementally when the bank uses it to purchase assets (issue loans).
But surely they could create an account that interacts with the rest of the banking system, but doesn't get counted in their balance sheet?
People getting paid by it aren't auditing them each time, so it should be possible to do this at a reasonable scale (e.g. if some clandestine gov entity wanted to fund itself secretly and for free)?
I mean, a bank can theoretically just make an account on their books and put a balance in there. But as I said, account balances are liabilities of the bank, not assets.
Yeah that's all I'm saying - not implying it would be legal or within GAAP standards 😅
Ha, just saw this 😅
Bank error in your favor