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I'm a bit unsure what happens when a borrower defaults on their loan. The money that was borrowed remains out in circulation, but what happens to the debt (anti-money)?

Does the bank itself use its own money to pay off the debt (deleting some of their own money), or do they simply delete the debt?

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I'm commiting the faux paus of providing a chat-gpt answer, but I've worked in fintech (annuities though) and I can confirm that this answer is broadly correct. https://chatgpt.com/share/687bbde1-4ba8-800c-92e5-93edd49b01...

In principle, it is 'the bank uses its own money to pay off the debt', as long as you accept that the bank's own 'credit worthiness reputation' and other assets count as 'money'. The hit is _ultimately_ taken by the capital shareholders in the bank, which is the important part.

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