Comment by bubbleRefuge

Banks do not loan out deposits . This is a misunderstanding of modern banking. In modern banking systems, loans create deposits. Banks create loans out of thin air. In order to make loans they must have appropriate capital ratios. Bank deposits are a liability. When a bank deposit is debited, either via a withdrawal, check, or other transaction, it is settled using reserves. Reserves are federal money that is on deposit in accounts which banks have at the Federal reserve. Banks pay each other via interbank reserve settlements. Banks only maintain a minimal amount of reserves on deposit(Reserve Requirements). They can borrow reserves from the Fed if needed.