that's not what the time settings mean. the timeout is the time you have between your opponents last move and your next one. thus it resets every time you move. The timebank is a 'bank' of time funnily enough! Once you go beyond your timeout time (1 day in your example), you start eating into your timebank. The timebank never resets for that game though. So the timebank allows you 7 days grace over the period of the game. There's a better description in the standard FAQ section of the site help.
From the FAQ:
What is a timebank?
The timebank is a time control that is used in addition to the timeout time control. It is designed to make games quicker by allowing you to select a shorter timeout period that you may otherwise feel comfortable with.
The timebank is a bank of reserve time that can be dipped into throughout the game. Unlike the timeout period which gets reset after each move, the timebank period never gets restored.
Why bother with an extra time control?
Your preferred timeout period may be three days but you fear that you may be unexpectedly unable to move at some point so you choose a seven day timeout. With the timebank option, you can choose a three day timeout and still have some emergency cover for these occassional delays. A well chosen combination of timeout and timebank periods can make games move at the pace that suits you best.
Timebank Details
Each game has a timeout period, specified in days. If you do not move within this period you will start eating into your timebank period.
Like the timeout period, the timebank period is specified at the start of the game. Below is an example of the timebank in use:
Example:
A game is started with a 3 day timeout period, and a 14 day timebank.
White makes a move.
Black then takes 3.5 days to make a move. Black has used the timeout period, and 12 hours of Black's timebank period has also been used. Black now has only 13.5 days timebank left for the rest of the game.
White moves again within the 3 day timeout limit. White's timebank is unused.
Black then takes 7 days to make the next move. Another 4 days has been taken from Black's timebank, leaving Black with 9.5 days of timebank.
White moves again within the 3 day timeout limit. White's timebank is unused.
Black now takes 13 days to move! Black is lucky his opponent did not claim the win because black only had 12.5 days to make the move (3 day timeout plus 9.5 days remaining timebank)
The remaining timebank period for both players in any game can be viewed graphically by clicking the 'info' link next to that game in the 'My Games' view.