Assume a bank gives a loan to Mr X. for, say 100. The bank's assets (account "loans") increases by 100, and its liability (account "deposits") also go up by 100 (which is the extra 100 added to the current account of that who asked for the loan).
Say Mr. X does not want to pay the loan+interest. The bank is, by law, entitled to them, so it can perfectly use the law to reclaim the money and interest back (maybe possessing some material wealth like a house or other collateral used to secure the loan in the first place). However, can a bank, in theory, simply erase the loan and deposit? Can it simply eliminate the 100 from both assets and liabilities? Would not this way the bank be exactly the same as in the beginning?
PS: sorry I am asking many questions. I am study economics and banking and cannot understand everything very well. It is great to have a place here to improve my knowledge