[jcbrand]

> The rest by design is to be lent out, that's how banks offer loans, mortgages etc.

When banks lend out money, they don't lend out existing deposits, they create new (debt-based) money from nothing and this new money is fractionally backed by deposits.

With 10% fractional reserves, if they have $100 in deposits, they can lend out $1000, thereby creating $900 of new money from nothing.

[spongebobism]

The second sentence is a bit misleading. Reserves are not a prerequisite for lending in our monetary system. The bank gives out all the loans that it deems profitable and only has to ensure after the fact that its balance with the central bank is sufficient (in your example, if it had loaned out 1700$, it would need to increase the balance by 70$, e.g. by taking out a loan with the central bank).

edit: Here is a great explanation: https://www.bankofengland.co.uk/-/media/boe/files/quarterly-...

Quote: "Another common misconception is that the central bank determines the quantity of loans and deposits in the economy by controlling the quantity of central bank money — the so-called ‘money multiplier’ approach. In that view, central banks implement monetary policy by choosing a quantity of reserves. And, because there is assumed to be a constant ratio of broad money to base money, these reserves are then ‘multiplied up’ to a much greater change in bank loans and deposits. For the theory to hold, the amount of reserves must be a binding constraint on lending, and the central bank must directly determine the amount of reserves. While the money multiplier theory can be a useful way of introducing money and banking in economic textbooks, it is not an accurate description of how money is created in reality."

[strbean]

Is this not wildly glossing over the fact that there was a reserve requirement until very recently?

https://www.federalreserve.gov/monetarypolicy/reservereq.htm

[chii]

> thereby creating $900 of new money from nothing.

and if all of a sudden, the depositors decide to take out their $100 in deposits, the bank is in trouble, because they'd still have the $1000 in loans, which is now not backed by any reserves.

They, if this were to happen, would be required to obtain the reserves somehow - borrow from another bank, from central bank, or attract new depositors.

so in essence, the idea that the depositor's money is "lent out" is not technically correct, but the idea is not too different.

[kasey_junk]

The US average loan to deposit ratio sits around .8. SVB is at around .45.

Loan to deposit ratio is orthogonal to reserve ratios, which is orthogonal to capital requirements.

It’s not that banks are loaning out more than their deposits that creates new money, it’s that they are loaning out money _at all_ that does.