How Banks Create Money From Nothing

When a bank approves your loan, the money appears in your account in seconds. Nobody opens a vault and no saver loses a cent. So where does that money come from? In this video you follow Maya, an imaginary baker, through a single bank loan, step by step. You will see what a bank deposit really is, why the textbook story of fractional reserve banking and the money multiplier gets the order backwards, how a loan creates brand new money on a bank's balance sheet, why repaying a loan destroys money, and what actually limits how much money banks can create: borrowers who can repay, capital rules, and the interest rate set by the central bank. Chapters 0:00 Where did your $20,000 come from 0:29 What money really is 1:25 The textbook story: fractional reserve banking 2:11 The money multiplier 2:42 What the Bank of England found 3:01 Maya's loan and the balance sheet 3:30 How a loan creates brand new money 4:13 The new money travels 4:39 Interest: how a bank earns 5:03 Repaying a loan destroys money 5:35 When a loan goes bad: bank capital 6:09 The limits and the Federal Reserve 7:19 The whole loop, answered 7:50 Two practical points Important: Maya, Maya's Bakes, Hot Crust Ovens and the loan figures ($20,000, $50,000, $30,000, 8% interest, $4,000) are fictional and illustrative, used only to explain the mechanism. This video is general education, not financial advice. Sources Bank of England, "Money creation in the modern economy", Quarterly Bulletin 2014 Q1 (McLeay, Radia and Thomas): https://www.bankofengland.co.uk/quart... Federal Reserve, Reserve Requirements (ratios cut to 0% effective March 26, 2020): https://www.federalreserve.gov/moneta... Federal Reserve, Interest on Reserve Balances and the federal funds rate: https://www.federalreserve.gov/moneta... FRED, Currency Component of M1 (CURRSL), August 2026: https://fred.stlouisfed.org/series/CU... FRED, M2 money stock (M2SL), August 2026: https://fred.stlouisfed.org/series/M2SL Deutsche Bundesbank, Monthly Report April 2017, "The role of banks, non-banks and the central bank in the money creation process": https://www.bundesbank.de/en/publicat... #banking #money #moneycreation #economics #personalfinance #federalreserve #explained