[kirvyteo]

"But the largest sums were stolen by hacking into a bank’s accounting systems and briefly manipulating account balances. Using the access gained by impersonating the banking officers, the criminals first would inflate a balance — for example, an account with $1,000 would be altered to show $10,000. Then $9,000 would be transferred outside the bank. The actual account holder would not suspect a problem, and it would take the bank some time to figure out what had happened."

A naive thought...if they leave with the exact amount of money (left) in the bank, should it be seen as just "illegal inflation", rather than seeing it as a theft. Someone made a gain but nobody made a loss in any case. Banks have always created more liquidity officially through loans, except that it is legal.

[joemi]

As far as I understand it, the money that was transferred out did not come from nowhere... Ultimately it was the bank's money.

Edit: Meant to also mention also that the whole making-it-look-like-an-account-had-more-money concept was about making the fact that they were taking the bank's money harder to notice. It was not actually creating money that did not exist before.

[justincormack]

Not sure, double entry bookkeeping is apparently not baked in everywhere, if you can increase an account balance it might not be picked up. If this is creating money, well thats another question.

[niels_olson]

Yes, that's absolutely fascinating. The banks wouldn't catch on until up to 10 hours later. Is it possible they're only validating their database every 10 hours?! Shouldn't the database reject the transaction instantaneously?

[DangerousPie]

Private banks can't "create money". Are you maybe confusing them with central banks?

[hyperion2010]

Fractional reserve systems mean that private banks can and actively do create money by lending.

[rlucas]

That's certainly not what went on here, from the description. Your assertion is truthy, in that, yes, the /practice/ of fractional reserve banking increases the money supply.

However, to do the equivalent in the way the example described would have required mocking up a loan (asset) which would be offset by a liability (deposit account balance), and a reserve amount (loss allowance and bank capital) behind it. In that manner you create 10,000 in an account which may be withdrawn where the "real" money in the bank is only 1,000. This happens every day, but not by hackers, just by run of the mill self-dealers and fraudsters. At the end of the day the 9,000 comes out of the capital of the bank (or the deposit insurance if things get dire), but it can take months or years ... See the s&l crisis for more.

But hackers don't give a shit about the books seeming to balance for years to snooker regulators. They just want to withdraw the $9,000. The books obviously won't reconcile end of day, but who cares?

So yeah, fractional reserve banking is interesting to know about and not without its hazards, but this exploit could have happened against a full reserve depository institution just as well. The fractional reserve thing is spurious.

[raincom]

Well, there is horizontal money vs vertical money. Private banks create horizontal money; federal reserve creates vertical money.