Banks Don't Lend Your Savings. They Create New Money.

When a bank gives you a $300,000 mortgage, it doesn't hand over someone else's savings. It types $300,000 into your account, and that money didn't exist a second earlier. This video explains how banks really create money: why the textbook "money multiplier" isn't how it works, how loans create deposits and repayments destroy them, what actually limits how much banks can lend, and why only about one dollar in ten in the U.S. is physical cash. Previous episode: How a Bank Run Actually Works    • How a Bank Run Actually Works   CHAPTERS 00:00 $300,000 from nowhere 00:32 The textbook story 01:02 Loans create deposits 01:43 Spending it 02:15 Two kinds of money 02:46 Paying it back destroys money 03:06 What stops banks typing more 03:40 How much of it is cash 04:12 When it runs backwards 04:43 Money is a promise 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 (reduced to zero percent effective March 26, 2020) https://www.federalreserve.gov/moneta... Federal Reserve H.6 money stock via FRED: M2 (M2SL) and Currency Component of M1 (CURRSL), August 2026 https://fred.stlouisfed.org/series/M2SL https://fred.stlouisfed.org/series/CU... Federal Reserve History, "The Great Depression" https://www.federalreservehistory.org... FDIC, A Brief History of Deposit Insurance in the United States https://www.fdic.gov/resources/public...