[iso1210]

> The money created doesn’t necessarily go back to the bank

Very little will be kept in a matress or burnt. Almost all will go back to a bank.

$1m in Bank A

$1m in bank B

Charlie borrows $900k from Bank B, gives to Dave, puts into Bank A

Eric borrows $900k from Bank A, gives to Felicity, who puts it in bank B.

[kgwgk]

"A bank" is not the same as "the bank".

In your example, the money borrowed by Charlie from B does later go back to bank B.

But if you remove the last transaction it doesn't.

Hence, it doesn't necessarily happen.

[iso1210]

Bank A $0 deposit

Bank B $1m deposit

Total deposits: $1m

Fred borrows $900k from Bank B and gives to Geraldine who puts it in Bank A

Bank A $900k deposit with no loan

Bank B $1m deposit with 900k loan (90%)

Total deposits $1.9m (90% above initial deposits)

Henry borrows 800k from Bank A and gives to Iris who puts it into Bank A

Bank A $1.7m with 800k loans (loans at 60%)

Bank B $1m deposit (loans at 90%)

Total deposits $2.7m (170% above initial deposits)

And the cycle continues, doesn't matter how many banks.

[kgwgk]

There is no cycle for bank B there.

It went from

  Bank B $1m deposit
  [$100k required reserves + $900k excess reserves] 

to

  Bank B $1m deposit with 900k loan (90%)
  [$100k required reserves + zero excess reserves]

and it's still there at the end. It doesn't have excess reserves, it cannot make new loans if it cannot get more money.

To be clear, my original comment was: "The money created doesn’t necessarily go back to the bank. When you take a loan you use the money for something, not to keep it in an account at that bank. It will typically end in another bank."

The bank =/= A bank

One bank =/= The banking system

[Of course when another bank gets more reserves it increases their capacity to extend new loans. The question was whether a bank with $1m in deposits can lend $9m, not whether the whole banking system could.]