How banks create credit.

• How a modern bank creates credit

  Extends a loan to a business or household
• Banks create credit by giving out loans
• Commercial banks create credit

  By creating loans, overdrafts, and mortgages
• Banks create credit by also charging interest on loans
• What do banks charge on loans that creates credit?

  Banks charge interest rates
• More lending from a commercial bank creates more profits
• What does more lending from a commercial bank create?

  More profits
• Process of a bank creating credit:

  1. By approving a loan creating a new deposit into the borrowers account
  2. Banks operate under a fractional reserve system
  3. As they keep a fraction of deposits as reserves and lend out the rest
• Process of a bank creating credit:


  1. By approving a loan creating a new deposit into the borrowers account
  2. Banks operate under a fractional reserve system
  3. As they keep a fraction of deposits as reserves and lend out the rest