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I think it is a highly simplified or "stylised" depiction of the banking sector. It may or may not be an appropriate way to think of the banking system dependin

I think it is a highly simplified or "stylised" depiction of the banking sector. It may or may not be an appropriate way to think of the banking system depending on the context in which it is used, but I would not say it is (necessarily) "laughably wrong". In aggregate, deposits are created by bank loans, but depositing cash with a bank may increase that bank's ability to make new loans, so it in effect "uses" the deposits to make the loans. I have heard a lot of very intelligent and educated people describe the banking system in the same terms as the article. Too much to conclude that it is a laughably wrong take. If I stopped reading every time I saw that description, I wouldn't read much about the banking system at all, beyond that one Bank of England paper that people post every time this comes up.

hgomersall 3y ago
If you stop reading when that comes up, you'd probably not read most of the nonsense that passes for commentary on the financial system and be much better informed as a consequence. It's not a simplification, it's completely wrong. There are plenty more descriptions of how it works if you care to look, it's just that the BoE paper is rather authoritative (coming from the bank that literally makes the rules within the UK). The mechanism by which deposits "increase a banks ability to make new loans" is just a sideshow. Deposits are not the limiting factor in the banks ability to make new loans. It might be they use deposits as a cheap way to meet their Basel III liquidity obligations, but there are other routes to doing so.