> If a bank starts with $1000 in assets, loans me $750 and still retains $1000 in assets, how can it be said the bank can't loan money it doesn't have? Because

> If a bank starts with $1000 in assets, loans me $750 and still retains $1000 in assets, how can it be said the bank can't loan money it doesn't have? Because the bank has to transfer the money. Let's assume a 2 bank world: Bank A and Bank B I apply for a loan for a house of $100, ignoring future value and default probabilities. I get given the loan and need to send the money to the house owner. The Bank A marks in its books that I have a $100 loan and transfers the money from its assets to Bank B. Bank A's assets have not changed, but its capital-asset ratio has (as it now has less assets to back its capital). OR Bank A transfers $100 to Bank B but doesn't want to pay out assets, so it goes into the interbank market and borrows $100 from another bank at the same time, increasing its assets by $100 and also increasing its liabilities by $100. The home owner that receives the money in their bank, Bank B. Bank B's assets have increased by $100 and liabilities have increased by $100 (as it will, in the future, need to pay out the cash to the home owner). This is where the money multiplies happens. Finding itself sitting on deposits not doing anything, it is likely Bank B will go into the interbank market and lend out some money to Bank A who seems better at finding customers.