[eru]

> I’ll admit my Google Foo is currently failing me [...]

See https://en.wikipedia.org/wiki/Reserve_requirement#Countries_...

> [...] reserve requirements were a very real requirement up until the last couple of years.

Mostly only in the US.

The whole Wikipedia entry is worth a look.

If you want to read more than you ever wanted to know, check out the works of George Selgin.

[lowkey]

Notably all other countries have a similar fractional reserve banking model even if the details may vary. Specifically, the money loaned out by the bank is created out of thin air in the form of bank credit and does not come out of any account. The banks in every country have no cost of goods for the money they lend out. They are authorized by government charter to create this money out of thin air. This is true whether they have reserve requirements or not.

[eru]

I am afraid you are misunderstanding the situation.

First, government authorisation is irrelevant. Shadow banking has the same effects. See https://en.wikipedia.org/wiki/Shadow_banking_system And so do grey or black market operations. Or offshore banks (that don't fall under the local government's authorisation.)

Second, even in the absence of any minimum legal reserve requirements, why do banks need reserves at all? Among other uses, banks need reserves for two main reasons:

* Cash withdrawals

* Net settling of money transfers with other banks

Now you are right that a bank can in principle create a loan/deposit pair out of thin air: they just adjust their ledger that you have now have 100$ dollars in your current account, but also that you owe them a 100$. Voila: money from nothing.

Now here's the problem: debtors are seldom content to let the loaned funds gather dust in their accounts. Typically, they spend them. Either by withdrawing cash or by transferring the money to some other person's account.

Chances are that the other person's account is with a different bank.

Both the withdrawal and the transfer diminish the reserves of our bank.

(On the flip side: both cash deposits and your customers receiving a money transfer into their account, increases your bank's reserves.)

In summary: yes, in the instant of creation, loans create money out of thin air. But as soon as the debtor spends the loaned funds, reserves (and thus deposits) are required.

And that's why even in the absence of legal reserve requirements, banks have to attract deposits.

Does this make sense?

See also https://www.alt-m.org/2017/09/06/the-bagging-rule-or-why-we-...