> Sort of. Banks under fractional reserve are limited by a "reserve requirement" [1]. This limits the amount a bank can loan at any time. Slightly tangential t

> Sort of. Banks under fractional reserve are limited by a "reserve requirement" [1]. This limits the amount a bank can loan at any time. Slightly tangential to the main topic, but this is a common misunderstanding and incorrect. Bank lending is not constrained by the amount of reserves a bank has, because banks can and do lend each other reserves (or sell each other reserves in exchange for other assets). So banks just make loans regardless of how many reserves they have. Afterwards, a separate department checks whether they satisfy the reserve requirements. If they do and they have too many reserves, they will try to lend those reserves to other banks. If they don't, they will try to borrow reserves from other banks or from the central bank. Note that banks still cannot make loans willy-nilly. It's just that they're constrained by capital requirements instead, as opposed to what people commonly believe. Edit: If you are interested in the low-level workings of the system, I recommend reading the corresponding writeups of Modern Monetary Theory economists. A good starting point (though somewhat lengthy) is here: http://neweconomicperspectives.org/p/modern-monetary-theory-primer.html http://neweconomicperspectives.org/p/modern-monetary-theory-...