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That’s not how it works. This is a good primer by the Bank of England: https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/2014/money-creation-

That’s not how it works. This is a good primer by the Bank of England: https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/2014/money-creation-in-the-modern-economy.pdf?la=en https://www.bankofengland.co.uk/-/media/boe/files/quarterly-... Bank lending always creates new money. They don’t (and can’t) “lend deposits”.

unyttigfjelltol 4y ago
Maybe, but in the case of SVB, deposit amounts were suspiciously similar to assets.... The BOE is simply pointing out in the link that they are the only proper bank in the UK. All the others borrow from the BOE to make loans. Commercial banks don't "create" money any more than the BOE "borrows" it from elsewhere.... The BOE creates money and lends it to commercial banks who put up a deposit and make a reasonable case for credit.
NovemberWhiskey 4y ago
OK, sure. It’s a distinction without a difference though. If you read pg. 5 of that document, it explains how the effect of market forces results in essentially the same net effect for an individual bank as if they did “lend deposits”. This, plus the other effects (like what the BoE calls “prudential regulation”) are the reason why you don’t see banks with zero deposits and a trillion pounds of loans. Credit vs quantity theory of money is basically a concern of monetary policy (like: what is the expected effect of quantitative easing?) and doesn’t really bear on decisions at the level of individual banks or borrowers: things look consistent with both theories. Like: it doesn’t matter whether classical or relativistic mechanics are “true” if you’re only following the flight of a baseball.
HDThoreaun 4y ago
Of course banks are lending deposits. They're throwing in some investor money too but vast majority of loans they write is using deposits. You can try to make some sort of "number on screen go up" argument, btu the underlying value comes from somewhere. When someone takes a loan and withdraws dollars they're usually getting money that was deposited by a customer.
- wonnage 4y ago
  That's a misunderstanding - when a bank originates a loan: - the bank records an asset (the loan) and a liability (the deposit in the borrower's account) - the borrower records an asset (the loan money now deposited at the bank) and a liability (the loan) https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/2014/money-creation-in-the-modern-economy.pdf https://www.bankofengland.co.uk/-/media/boe/files/quarterly-... At this point the money literally came out of thin air, there's more total currency in the system then there was before. It might seem like an irrelevant nuance but it's pretty important to understanding how the money supply works
  - HDThoreaun 4y ago
    except people withdraw money and the bank needs to give those people actual cash. That's deposits. Of course they could take overnight loans or whatnot but deposits are cheaper.
    - nosianu 4y ago
      The vast majority of money is not withdrawn. It's all transfers. And that is a major point and difference. Also, if it was all withdrawn it's a bank run, which has not been a problem in the US for quite a while. Overall it cancels out for the large banks, of course people transfer money they just borrowed from the bank away, but that bank also has customers that are recipients of money. That, and other mechanisms between banks and banks and central bank(s) to balance such things within all the banks in the overall economy. Money withdrawn from one bank goes to another one, and everybody is not just sender but also recipient from someone else.
      - HDThoreaun 4y ago
        I am responding to a post that said > Bank lending always creates new money. They don’t (and can’t) “lend deposits”. It's just not true. The banks do transfer literal cash from deposits out of the system through loans. The cash in banks didn't come from thin air.
tekknik 4y ago
In a fractional reserve system the amount they can loan out is a multiple of their deposits, with the excess money coming from the central bank. Also why link an article from the UK when the subject is a US bank? There are differences between the two countries banking systems and monetary policies.
- deleted 4y ago
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nly 4y ago
Cash is fungible so the difference is not important. A bank has to balance its books eventually.

unyttigfjelltol 4y ago

Maybe, but in the case of SVB, deposit amounts were suspiciously similar to assets.... The BOE is simply pointing out in the link that they are the only proper bank in the UK. All the others borrow from the BOE to make loans. Commercial banks don't "create" money any more than the BOE "borrows" it from elsewhere.... The BOE creates money and lends it to commercial banks who put up a deposit and make a reasonable case for credit.

NovemberWhiskey 4y ago

OK, sure. It’s a distinction without a difference though. If you read pg. 5 of that document, it explains how the effect of market forces results in essentially the same net effect for an individual bank as if they did “lend deposits”. This, plus the other effects (like what the BoE calls “prudential regulation”) are the reason why you don’t see banks with zero deposits and a trillion pounds of loans. Credit vs quantity theory of money is basically a concern of monetary policy (like: what is the expected effect of quantitative easing?) and doesn’t really bear on decisions at the level of individual banks or borrowers: things look consistent with both theories. Like: it doesn’t matter whether classical or relativistic mechanics are “true” if you’re only following the flight of a baseball.

HDThoreaun 4y ago

Of course banks are lending deposits. They're throwing in some investor money too but vast majority of loans they write is using deposits. You can try to make some sort of "number on screen go up" argument, btu the underlying value comes from somewhere. When someone takes a loan and withdraws dollars they're usually getting money that was deposited by a customer.

wonnage 4y ago
That's a misunderstanding - when a bank originates a loan: - the bank records an asset (the loan) and a liability (the deposit in the borrower's account) - the borrower records an asset (the loan money now deposited at the bank) and a liability (the loan) https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/2014/money-creation-in-the-modern-economy.pdf https://www.bankofengland.co.uk/-/media/boe/files/quarterly-... At this point the money literally came out of thin air, there's more total currency in the system then there was before. It might seem like an irrelevant nuance but it's pretty important to understanding how the money supply works
- HDThoreaun 4y ago
  except people withdraw money and the bank needs to give those people actual cash. That's deposits. Of course they could take overnight loans or whatnot but deposits are cheaper.
  - nosianu 4y ago
    The vast majority of money is not withdrawn. It's all transfers. And that is a major point and difference. Also, if it was all withdrawn it's a bank run, which has not been a problem in the US for quite a while. Overall it cancels out for the large banks, of course people transfer money they just borrowed from the bank away, but that bank also has customers that are recipients of money. That, and other mechanisms between banks and banks and central bank(s) to balance such things within all the banks in the overall economy. Money withdrawn from one bank goes to another one, and everybody is not just sender but also recipient from someone else.
    - HDThoreaun 4y ago
      I am responding to a post that said > Bank lending always creates new money. They don’t (and can’t) “lend deposits”. It's just not true. The banks do transfer literal cash from deposits out of the system through loans. The cash in banks didn't come from thin air.

tekknik 4y ago

In a fractional reserve system the amount they can loan out is a multiple of their deposits, with the excess money coming from the central bank. Also why link an article from the UK when the subject is a US bank? There are differences between the two countries banking systems and monetary policies.

deleted 4y ago
[deleted]

nly 4y ago

Cash is fungible so the difference is not important. A bank has to balance its books eventually.