It actually creates debt out of thin air. The loan receiver has debt principal plus interest to be repaid. The bank's asset is the interest on that debt. Net m

It actually creates debt out of thin air. The loan receiver has debt principal plus interest to be repaid. The bank's asset is the interest on that debt. Net money after the loan is repaid is negative - if we include fees and interest then a repaid loan from the bank in isolation actually removes money from the economy. What keeps it all going is the continued issuance of debt, which is often used to repay existing debt, as well as invest in capital that will ideally generate enough returns to repay interest.