<P> In the audited financial statements of the bank, the $100 in currency would be shown on the balance sheet as an asset of the bank and the deposit account would be shown as a liability owed by the bank to its customer . The bank's financial statement reflects the economic substance of the transaction--which is that the bank has borrowed $100 from its depositor and has contractually obliged itself to repay the customer according to the terms of the agreement . These "physical" reserve funds may be held as deposits at the relevant central bank and will receive interest as per monetary policy . </P> <P> Typically, a bank will not hold the entire sum in reserve, but will loan most of the money out to other clients, in a process known as fractional - reserve banking . This allows providers to earn interest on the asset and hence to pay out interest on deposits . </P> <P> By transferring the ownership of deposits from one party to another, banks can avoid using physical cash as a method of payment . Commercial bank deposits account for most of the money supply in use today . For example, if a bank in the United States makes a loan to a customer by depositing the loan proceeds in that customer's checking account, the bank typically records this event by debiting an asset account on the bank's books (called loans receivable or some similar name) and credits the deposit liability or checking account of the customer on the bank's books . From an economic standpoint, the bank has essentially created economic money (although not legal tender). The customer's checking account balance has no dollar bills in it, as a demand deposit account is simply a liability owed by the bank to its customer . In this way, commercial banks are allowed to increase the money supply (without printing currency, or legal tender). </P> <P> Banking operates under an intricate system of customs and conventions developed over many centuries . It is also normally subject to statutory regulations, such as reserve requirements developed to reduce the risk of failure of the bank . It may also have the purpose of reducing the extent of depositor losses in the event of bank failure . </P>

Who owns the money in a bank account