[stephen_g]

As others have said, that is a textbook model of banks that describes how banks haven’t worked for at least a century (if ever?). That’s called the ‘money multiplier’ model, and it’s a myth. Even ‘fractional banking’ isn’t really a valid explanation. How banks work is called ‘endogenous money’, but one economist is trying to change that to the more friendly and self explanatory “bank-originated money and debt.”

The most amazing thing about how banks actually work (see the article) is that they don’t need any deposits to lend. Thus, how much a bank can lend is utterly independent of the amount of deposits they have. (Of course, deposits are useful for liquidity for interbank transfers, but the bank can just borrow reserves from other banks or the CB if it needs). But lending creates deposits with an equal amount of debt.

The other thing to remember is that deposits are a liability to the bank. A bank couldn’t lend out deposits because it wouldn’t balance out in double entry bookkeeping - even if it created the debt as an asset, it needs to create the matching deposit, so now you have two liabilities (deposit lent from, deposit for the person lent to) and one asset (the debt), which doesn’t sum to zero. Whereas creating the asset (mortgage / debt) and a matching liability (deposit) does.