3 ms·

>They are creating money only via lending, and there are laws regarding how much they're allowed to lend out (called reserve requirements). I thought "reserve"

• chii 4y ago
  > I just create enough to reserve part of it. but you cannot create enough, because before you created, you did not have enough reserve to legally create the loan. The newly created loan cannot be part of the reserve to which you count towards your original reserve requirement to qualify to make the new loans! otherwise, this would just be a loophole in the reserve requirement laws. And these monies are not cash - they are loans. If these loans default, and the bank somehow cannot collect the collateral for it, the bank will lose equity. Aka, the shareholders of the bank takes the loss. If this loss is great enough, the bank becomes insolvent. That's why banks do not lend to risky people, or takes a larger collateral.