What if a bank ignores an account "freeze"?

a billion of their dollars This is the question - I understand why if they just credited my account it would be their money; but why is it their money if they also balance that with a false incoming transfer from another bank? The OP's question seems to be getting at why banks can't just do as they please in an era where money is mostly digital (and not backed by gold reserves or anything). So, what's to stop a bank from falsifying both sides of a ledger? (Look at it this way: you're Lehman Bros, and you don't want to fail; assuming that the authorities are idiots, why can't you just create money in your own account and make it look like it came from elsewhere?)

Somebody please explain this concept to the U.S. Federal Reserve Bank. They seem to be able to use imaginary money to buy U.S. Treasury debt without any immediate repercussions... Well, first, there are immediate and long-term repercussions to the creation of new currency by the Federal Reserve, which they acknowledge and fret over openly. Second, that's actually part of their official role, so it's really not the same as a bank cooking its books.

...Imaginary money is fine as long as it sits there in your head or your ledger or your computer. It's just a game, Monopoly money. But but the moment you spend it or invest it -- the moment you use that money to accomplish something that's not confined to your head or your own computer -- you create very real liabilities that are backed by totally imaginary assets, just as if you'd driven away from the dealership in a sports car paid for with a bad check. Somebody please explain this concept to the U.S. Federal Reserve Bank. They seem to be able to use imaginary money to buy U.S. Treasury debt without any immediate repercussions...

One word: Auditors. No banks exist in a vacuum. They get the money from somewhere (the treasury) and send it somewhere. It would quickly fall apart if the money can't be traced back to its source, and verified by a debit on one party's books, and a credit on another's.

Yes, those bits of "imaginary" money actually represent "real" money, somewhere, somehow. What is happening at the Cuban end is that Havana is, without so much as a how-do-you-do, borrowing money from you and promising a small return on your "investment" in Cuba. This means that it is no longer a liquid asset. It's a little like when you deposit a big check and your bank puts a hold on it until it actually receives the funds from the source bank. They could give you the money now, and many banks actually will give you some of the money now, but it's essentially a loan -- part of the same mechanism as an overdraft line of credit. Sure, you've been a good customer all these years, and they know next week you should get a paycheck, but when they let you write that rent check over your balance they have just given you a loan. You may well find a bank that will have a similar policy with regards to these Cuban funds. But it is still a loan and should come to you with some strings attached -- for instance, if the Cuban government defaults, then you're on the hook for the money you spent.

Way off topic, but I'll answer this then bow out. Perhaps another question could be crafted to address this (very valid but very broad) query: "or could a bank, theoretically, maintain sufficient reserve levels even if it were creating huge amounts of new money, just by creating new electronic deposits for itself? What I'm trying to get at is that when currency was gold-backed, when a bank received a transfer (as I understand it), a certain amount of gold at the Federal Reserve was recorded as being under that bank's name. (Did the Fed ask for some proof of that transfer?) Now, without gold backing and with most money just being electronic, is there any reason that a bank could not keep itself healthy through fraud?" Banks and regulated financial institutions are required to maintain reserves - http://www.riskglossary.com/articles/regulatory_capital.htm - that are a function of their liabilities. There are two main types, http://www.investopedia.com/terms/t/tier1capital.asp and http://moneyterms.co.uk/tier-2/, the differences are pretty much summed up as equity (Tier 1) vs. debt (Tier 2). Now in your model the liability side is increasing without a commensurate increase in the asset side. What happens to regulatory capital, the funds that are intended to protect the institution against collapse? As the liabilities increase so does the regulatory capital. Where would this come from? That seems to be the open question here; at the end of the day, someone has got to pay. Pay the individual who is withdrawing phantom deposits, and pay the regulators who will shut the institutions down if they blow regulatory capital (you seriously don't want to do that). Who would step up? That taxpayer? I don't know where the money would come from. But if an institution blows it's regulatory capital the FDIC, for starters, steps in. These days the FDIC is nervous and pre-emptive. Don't even THINK of violating capital adequacy! Finally, at the risk of this question drifting way off topic, gold was by no means a stable backing for currency. The US, for example reduced the amount of gold backing the dollar when it suited them. Bits or bullion, it makes no difference what backs your currency if the will for a strong, stable monetary unit isn't there.

Try this. Go into your Quicken, or MS Money file, or log into Mint.com, or take out your old paper ledger, and make an entry for an imaginary deposit into your checking account. Imagine yourself a $50K windfall. Now, go and write a check for $50K as payment for a new sports car. Since your credit is good, the dealer probably lets you take the car, and everything is great... for a day or so. The check bounces, of course, and the car is quickly repossessed and your credit is ruined. Imaginary money is fine as long as it sits there in your head or your ledger or your computer. It's just a game, Monopoly money. But but the moment you spend it or invest it -- the moment you use that money to accomplish something that's not confined to your head or your own computer -- you create very real liabilities that are backed by totally imaginary assets, just as if you'd driven away from the dealership in a sports car paid for with a bad check.

Here's the deal: banks are more than "just numbers". Those numbers keep track of the vast array of deals a bank makes. They keep track of how much they owe to depositors, how much they have lent out, and how much is on reserve with a regulatory institution, etc. When the bank has less money (and assets) than it owes to the public, that's like the definition of bankruptcy. It's got the word bank right in it. These numbers sum up the contracts that determine legal consequences, like bankruptcy. The problem with this fudging the numbers practice, then, is that there's no contract to back them up. And presumably, the person wanting to exit Cuba wants the legal right to withdraw money. As soon as you attempt to withdraw a billion fake Cuban deposit dollars, the bank that "ignored the freeze" has a problem. It has a billion dollar deposit but no billion dollar asset behind it. And that's the situation in which Lehman failed, and in which Bear failed. A bunch of people wanted their money out of Lehman, instead of rolling it over the next night, and their assets were not capable of being sold to cover it (which is why people wanted their money out).

Because, at some point, someone's going to try and withdraw some of that electronic money and use it as paper money.