<p>Banks are often very regulated and are required to follow the rule of law. Putting money into accounts not on the books is fraud and, due to the nature of double entry accounting, not that easy.</p>

<p>This <a href="http://en.wikipedia.org/wiki/List_of_financial_regulatory_authorities_by_country" rel="nofollow">wiki</a> has a list of regulatory authorities which purport to keep the banks honest. The trust in the system has taken a few hits since the GFC and the idea of too big to fail etc.</p>

<p>Short answer, the law stops the banks from doing some of the things that you suggest and as with any industry, some people will break it.</p>

CC BY-SA 3.0
2015-06-02T23:21:20.453Z
2015-06-02T23:21:20.453Z
Jamzy
<p>It's public information, and you can take courses, and even university degrees in it.</p>

<p>The double entry book keeping technology used by banks is essentially designed to tackle exactly this problem, and all banks and commercial customers use it. The system itself provides a single error detection/correction mechanism, that guards against human error, and also originally required updates in two separate books, maintained by two separate clerks - which was deliberately done to make fraud more difficult. Essentially if the books don't balance, this is a red flag to find the mistake/fraud that caused this to occur and correct it. These days it's all computerised, but the underlying operations are identical.</p>

<p>The entire accountancy profession's job, is essentially to supervise this process, and periodically audit both banks and companies in order to make sure that the books are balanced, and that nothing illegal is being done.</p>

CC BY-SA 3.0
2015-06-03T14:51:19.733Z
If I wanted to see these public records for myself, where could I go to find it? Would I necessarily have to go to two separate clerks, or would is this information made available to the public online?
Alexandru
CC BY-SA 3.0
2015-06-03T17:13:34.523Z
Double entry book keeping itself is something you learn, much like a programming language. If you are asking to see the actual accounting books of a company, no, that's not going to be possible. The accountants look at those, and then publish an annual report summarising their findings. Those you can find online for any publicly listed company. Just go to their web site, and look for investor information.
Lumi
CC BY-SA 3.0
2015-06-03T22:18:11.370Z
I should add, another good source for detailed bank info for the USA at least, are the FDIC call reports: https://www2.fdic.gov/call_tfr_rpts/
Lumi
CC BY-SA 3.0
2015-06-03T23:25:29.647Z
Do you happen to know what software banks use to perform double entry book keeping in modern times?
Alexandru
CC BY-SA 3.0
2015-06-03T23:45:11.893Z
SAS is quite common, but it's going to depend on the bank. What exactly are you trying to do? Genuine bank fraud is much more sophisticated than unbalanced books.
Lumi
CC BY-SA 3.0
2015-06-04T00:45:36.743Z
Nothing, I have a genuine curiosity about the way economics work and a lot of skepticism that it can be fair for everyone and controlled, so I ask these questions to get a better understanding of the way the system works.
Alexandru
CC BY-SA 3.0
2015-06-04T11:45:49.143Z
Fair and controlled are complex issues in their own right - but I think you're doing the right thing trying to understand the nuts and bolts properly - that's been my approach in any case.
Lumi
CC BY-SA 3.0
2015-06-02T23:18:54.957Z
2015-06-02T23:18:54.957Z
Lumi
<p>This doesn't require regulation in order to be feasible.</p>
<p>When a bank makes a loan it adds to the borrowers deposits on its books. The borrower will spend the borrowed deposits on whatever they needed the loan to buy like a building or machinery. This spending will involve the lending bank transferring assets to other banks, the banks of the borrower's suppliers. If a bank expands deposits through lending too far it will run out of assets that other banks will accept in payment. This is a form of bank failure.</p>
<p>For more see <a href="https://oll.libertyfund.org/title/white-the-theory-of-free-banking-money-supply-under-competitive-note-issue" rel="nofollow noreferrer">https://oll.libertyfund.org/title/white-the-theory-of-free-banking-money-supply-under-competitive-note-issue</a></p>

CC BY-SA 4.0
2022-01-06T12:17:50.020Z
As I wrote under your other answer, this is not how modern lending works.
Giskard
CC BY-SA 4.0
2022-01-07T19:27:55.620Z
@Giskard See my comment under my other answer, though perhaps we should take this to chat?
James Wattam
CC BY-SA 4.0
2022-01-05T21:34:30.077Z
2022-01-05T21:34:30.077Z
James Wattam
<p>I've just read <a href="http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/2014/qb14q1prereleasemoneycreation.pdf" rel="nofollow noreferrer">Money Creation in the Modern Economy</a>, an article published by the Bank of England. This article brings about a lot of questions in my mind. This article talks about money being created through commercial bank loans, and that central banks only have the authority to set interest rates or to employ quantitative easing in order to stimulate the economy. Loans being repaid should theoretically destroy the money that was created and balance the books, but inflation grows in that economy as banks earn interest (and in this case, the interest is actually the money that never existed, assuming that they destroy the rest of the money paid back). So my questions are:</p>

<ol>
<li>How is this all regulated? Who regulates the balancing of the books? </li>
</ol>

<p>This must require a lot of regulation in order to be feasible, because there are many commercial banks, but few central banks, and because central banks lack power. E.g. central banks can only set interest rates thus defining the theoretical inflation rate, or buy assets through quantitative easing.</p>

<ol start="2">
<li><p>What's stopping a commercial bank from making a deposit into someone's bank account that isn't on the books or what's stopping them from not destroying the money they get paid back from loans? </p></li>
<li><p>Can I find out more about this stuff for each bank? In other words, is this public information or not?</p></li>
</ol>

<macroeconomics><monetary-policy><banking><central-banking>
Who regulates the balancing of the books for commercial banks? How? Is it public information?
Alexandru
# Who regulates the balancing of the books for commercial banks? How? Is it public information?

(Asked by: username_0 on 2015-06-02)

I've just read [Money Creation in the Modern Economy](http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/2014/qb14q1prereleasemoneycreation.pdf), an article published by the Bank of England. This article brings about a lot of questions in my mind. This article talks about money being created through commercial bank loans, and that central banks only have the authority to set interest rates or to employ quantitative easing in order to stimulate the economy. Loans being repaid should theoretically destroy the money that was created and balance the books, but inflation grows in that economy as banks earn interest (and in this case, the interest is actually the money that never existed, assuming that they destroy the rest of the money paid back). So my questions are:

1. How is this all regulated? Who regulates the balancing of the books?

This must require a lot of regulation in order to be feasible, because there are many commercial banks, but few central banks, and because central banks lack power. E.g. central banks can only set interest rates thus defining the theoretical inflation rate, or buy assets through quantitative easing.

2. What's stopping a commercial bank from making a deposit into someone's bank account that isn't on the books or what's stopping them from not destroying the money they get paid back from loans?
3. Can I find out more about this stuff for each bank? In other words, is this public information or not?

**Tags:** macroeconomics, monetary-policy, banking, central-banking


---

## 3 answers

### Answer by username_1 on 2015-06-02. Score: 2

Banks are often very regulated and are required to follow the rule of law. Putting money into accounts not on the books is fraud and, due to the nature of double entry accounting, not that easy.

This [wiki](http://en.wikipedia.org/wiki/List_of_financial_regulatory_authorities_by_country) has a list of regulatory authorities which purport to keep the banks honest. The trust in the system has taken a few hits since the GFC and the idea of too big to fail etc.

Short answer, the law stops the banks from doing some of the things that you suggest and as with any industry, some people will break it.


---

### Answer by username_2 on 2015-06-02. Score: 2

It's public information, and you can take courses, and even university degrees in it.

The double entry book keeping technology used by banks is essentially designed to tackle exactly this problem, and all banks and commercial customers use it. The system itself provides a single error detection/correction mechanism, that guards against human error, and also originally required updates in two separate books, maintained by two separate clerks - which was deliberately done to make fraud more difficult. Essentially if the books don't balance, this is a red flag to find the mistake/fraud that caused this to occur and correct it. These days it's all computerised, but the underlying operations are identical.

The entire accountancy profession's job, is essentially to supervise this process, and periodically audit both banks and companies in order to make sure that the books are balanced, and that nothing illegal is being done.

> **Comments:**
> **username_0**: If I wanted to see these public records for myself, where could I go to find it? Would I necessarily have to go to two separate clerks, or would is this information made available to the public online?  
> **username_2**: Double entry book keeping itself is something you learn, much like a programming language. If you are asking to see the actual accounting books of a company, no, that's not going to be possible. The accountants look at those, and then publish an annual report summarising their findings. Those you can find online for any publicly listed company. Just go to their web site, and look for investor information.  
> **username_2**: I should add, another good source for detailed bank info for the USA at least, are the FDIC call reports: https://www2.fdic.gov/call_tfr_rpts/  
> **username_0**: Do you happen to know what software banks use to perform double entry book keeping in modern times?  
> **username_2**: SAS is quite common, but it's going to depend on the bank. What exactly are you trying to do? Genuine bank fraud is much more sophisticated than unbalanced books.  
> **username_0**: Nothing, I have a genuine curiosity about the way economics work and a lot of skepticism that it can be fair for everyone and controlled, so I ask these questions to get a better understanding of the way the system works.  
> **username_2**: Fair and controlled are complex issues in their own right - but I think you're doing the right thing trying to understand the nuts and bolts properly - that's been my approach in any case.  

---

### Answer by username_3 on 2022-01-05. Score: 0

This doesn't require regulation in order to be feasible.

When a bank makes a loan it adds to the borrowers deposits on its books. The borrower will spend the borrowed deposits on whatever they needed the loan to buy like a building or machinery. This spending will involve the lending bank transferring assets to other banks, the banks of the borrower's suppliers. If a bank expands deposits through lending too far it will run out of assets that other banks will accept in payment. This is a form of bank failure.

For more see <https://oll.libertyfund.org/title/white-the-theory-of-free-banking-money-supply-under-competitive-note-issue>

> **Comments:**
> **username_4**: As I wrote under your other answer, this is not how modern lending works.  
> **username_3**: @username_4 See my comment under my other answer, though perhaps we should take this to chat?  

---

