Quantitative Balancing: A Framework for Bank Accounting Reform

The provided text introduces Quantitative Balancing (QB), a proposed accounting framework designed to enhance transparency and stability in the banking sector. The core of QB involves reclassifying customer deposits from traditional bank liabilities to sovereign seigniorage liabilities owed to the State Treasury, thereby clarifying banks' role as custodians of money creation. This reclassification aims to address distortions in current financial reporting and mitigate systemic risks. The framework also formalizes a three-player Nash Equilibrium among banks, the state, and depositors, demonstrating how aligning their incentives can reduce moral hazard. Empirical analysis suggests QB could marginally affect profitability but significantly lower systemic default probability, and it is shown to be compatible with Islamic finance principles through an anti-usury variant.

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