Loans are assets for the bank. The typical ratio people talk about here loan:deposit. Bank investors get spooked if that goes over about .8 currently. Prior

Loans are assets for the bank. The typical ratio people talk about here loan:deposit. Bank investors get spooked if that goes over about .8 currently. Prior to 2008 it was closer to .9 but the financial crisis caused people to be more risk adverse. A ratio over 1 implies a bank is lacking liquidity. A 10:1 loan:deposit ratio would be real bad. The industry overall during the pandemic was sitting at around .6, which is one of the reasons the Fed removed the reserve requirement. They wanted to stimulate lending. LTD is not typically part of regulatory control (though in the US there are certain controls to make sure no bank gets too big that benchmark to it). Rather its enforced by the market, because equity holders demand it, because they have lower debt precedence than depositors. Bank assets(loans, investments, cash, etc):liabilities (deposits, borrowed money, trading losses, foreign bank holdings, etc) requirements are covered by capital regulations. A bank with less than 1 a:l would be considered insolvent and depending on the regulatory regime they are part of, might be forcibly put into receivership. Banks create money through lending, not because they are lending more than they are taking in, but because to the person being lent to, they now have more money. They have both their deposit, and the loan which can be put into circulation now. But they have a corresponding liability to the bank that must be paid over time.