"They also create a loan obligation saying you owe X amount and will pay Y amount every month for Z months."
I argue that the borrower, not the bank, is the one who creates the loan obligation. The bank can't force someone to be indebted to it.
Lending involves a contract. Each side must offer consideration to the other. I'd say the most concise way to describe what consideration it offers is a transfer of some of their (raw) net worth.
By create, I meant creates the contract document. Yes, they do so because the borrower applied for the loan, but the loan agreement document is provided by the bank.
Sure the bank typically creates the document, but I don't think that's what's significant for an economic analysis. The terms could just as easily have been written by a third-party lawyer, or negotiated between the bank's and borrower's lawyers (only likely for a big customer of the bank). At that stage, it's just a piece of paper describing the terms of a *potential* contract between the parties, in which each would offer consideration to the other. What actually creates the contract is the agreement of each party to the terms, evidenced by their signature. The bank's signature commits the bank to the creation of the deposit debt, and the borrower's signature commits the borrower to the creation of the loan debt.
That's fair. The signatures on the loan agreement is what creates the loan obligation.
To that end, I've updated the paragraph in question to read...
"They also create a loan contract, which when signed by both parties becomes a loan obligation, saying you owe X amount and will pay Y amount every month for Z months. This is a liability to you as you’re the one making the monthly payments, and an asset to the bank as they’re the one receiving the payments.".
"They also create a loan obligation saying you owe X amount and will pay Y amount every month for Z months."
I argue that the borrower, not the bank, is the one who creates the loan obligation. The bank can't force someone to be indebted to it.
Lending involves a contract. Each side must offer consideration to the other. I'd say the most concise way to describe what consideration it offers is a transfer of some of their (raw) net worth.
By create, I meant creates the contract document. Yes, they do so because the borrower applied for the loan, but the loan agreement document is provided by the bank.
Sure the bank typically creates the document, but I don't think that's what's significant for an economic analysis. The terms could just as easily have been written by a third-party lawyer, or negotiated between the bank's and borrower's lawyers (only likely for a big customer of the bank). At that stage, it's just a piece of paper describing the terms of a *potential* contract between the parties, in which each would offer consideration to the other. What actually creates the contract is the agreement of each party to the terms, evidenced by their signature. The bank's signature commits the bank to the creation of the deposit debt, and the borrower's signature commits the borrower to the creation of the loan debt.
That's fair. The signatures on the loan agreement is what creates the loan obligation.
To that end, I've updated the paragraph in question to read...
"They also create a loan contract, which when signed by both parties becomes a loan obligation, saying you owe X amount and will pay Y amount every month for Z months. This is a liability to you as you’re the one making the monthly payments, and an asset to the bank as they’re the one receiving the payments.".