Commercial banks create the money they lend out of nothing. They do not loan out the depositors’ mon

This is my understanding of how a bank works. If you just need to keep 10% of total loans and deposits as reserves, you can make as much money as you want to.

Let’s say you start a bank with no money down. You find roughly 50 people who want a mortgage and ask them for a 10% down payment. This comes to 13.5 million in loans, and your customers give you 1.5 million down payments, which go into the reserves account.

You have not bothered to build any customer deposits, because you are lazy or whatever.

Your balance sheet looks like this.

Assets…………………………..Liabilities Reserves: 1,500,000………..Deposits: 15,000,000 Loans: 13,500,000

This seems to meet the 10% capital requirements that are U.S. banks are generally held to.

The 10% reserve to deposit ratio is a myth. They add the amount of the loans to the deposit account.

You actually don’t need to find $1 million in customer deposits to make $900,000 in loans if you own a bank.

“[W]hen a bank makes a loan, it simply adds to the borrower’s deposit account in the bank by the amount of the loan. The money is not taken from anyone else’s deposit; it was not previously paid in to the bank by anyone. It’s new money, created by the bank for the use of the borrower.”

– Robert B. Anderson, Treasury Secretary under Eisenhower, in an interview reported in the August 31, 1959 issue of U.S. News and World Report

http://www.webofdebt.com/articles/creditcrunch.php

Please Read:

“[W]hen a bank makes a loan, it simply adds to the borrower’s deposit account in the bank by the amount of the loan. The money is not taken from anyone else’s deposit; it was not previously paid in to the bank by anyone. It’s new money, created by the bank for the use of the borrower.”

– Robert B. Anderson, Treasury Secretary under Eisenhower, in an interview reported in the August 31, 1959 issue of U.S. News and World Report

http://www.webofdebt.com/articles/creditcrunch.php

$1 deposited by a customer can be fanned into $10 in loans.

This is shocking.

“[W]hen a bank makes a loan, it simply adds to the borrower’s deposit account in the bank by the amount of the loan. The money is not taken from anyone else’s deposit; it was not previously paid in to the bank by anyone. It’s new money, created by the bank for the use of the borrower.”

– Robert B. Anderson, Treasury Secretary under Eisenhower, in an interview reported in the August 31, 1959 issue of U.S. News and World Report

http://www.webofdebt.com/articles/creditcrunch.php

Please read the March 2015 Iceland Monetary Reform document (link below.) It explains how the current monetary system actually works:

Commercial banks create the money they lend out of nothing. They do not loan out the depositors’ money, as they and most econ text books would have you believe. When the principle is paid back, it is deleted, because it didn’t exist in the first place. These are verifiable facts, not conspiracy theories.

Here’s a quote from page 35:

Speaking on a panel in a conference in Toronto in April 2014, Lord Adair Turner, head of the Financial Services Authority 2008-2013, describes the money multiplier model as “mythological” and explains how banks create new money when they make loans: “If you pick up most undergraduate textbooks…and you see how they describe the role of the banking system, they make two mistakes. First of all they describe a system which takes money from savers, and lends it to borrowers, failing to realise that the banking system creates credit, money and purchasing power ab inicio, de novo, and with an important role therefore within the economy. But also, again and again, [the textbooks] say “Well what banks do is they take deposits from households and they lend money to businesses, making the capital allocation process between alternative capital investments.” As a description of what modern advanced economy banking systems do, this is completely mythological.

Another quote (page 36):

In conclusion, the credit creation model sees causality in the banking system occurring in the following way:

When banks lend they create new deposits and thereby new money. Lending may increase a bank’s demand for reserves in order to settle payments to other banks. The central bank must provide reserves when a bank needs them. While money is created when banks lend money, money is deleted when bank loans are repaid.

Read more at http://investmentwatchblog.com/banks-create-money-and-charge-you-the-interest-on-it/#XvEYrC6Sy5UFd8om.99