The Payment System

How does your bank make payments for you?
(i.e. when you pay for something using check or debit card)

remember:

As we can see from bank balance sheets, the amount owed to account holders (deposits) is many times the amount of ready cash among the bank's assets.

however:

The bank also receives payments to you and other account holders.
Every business day, payments for account holders are coming in, and payments are going out.

In what way are these payments coming in and going out?

Let's consider 2 scenarios:

internal payments
(payer's and payee's accounts are with the same bank)

Suppose you and your hairdresser Judy both bank with TD Bank.
Accounts before your $100 hairstyling:

you	Judy	TD owes you two	TD balance sheet
1000	1000	2000	2,000,000,000,000 ($2T)

Accounts after Judy deposits your $100 check:

you	Judy	TD owes you two	TD balance sheet
900	1100	2000	2,000,000,000,000 ($2T)

external payments
(payer's and payee's accounts are with different banks)

Suppose your friend John banks with Bank of America,
and Barnes & Noble (B&N) banks with Chase.
Before his purchase:

John	BoA balance sheet	BoA's CB reserves	central bank balance sheet	Chase's CB reserves	Chase balance sheet	B&N
1000	3,000,000,000,000 ($3 trillion)	200,000,000,000	$8 trillion	500,000,000,000	3,500,000,000,000 ($3.5 trillion)	10,000

After John pays B&N $20 for a book with his debit card.

John	BoA balance sheet	BoA's CB reserves	central bank balance sheet	Chase's CB reserves	Chase balance sheet	B&N
980	2,999,999,999,980	199,999,999,980	$8 trillion (unchanged)	500,000,000,020	3,500,000,000,020	10,020