That's exactly the point - money is just numbers on screens. there is no money to loan out. the act of lending creates the money.
- Bank starts with $0 capitalisation or deposits
- Customer goes to bank and asks for $1 loan
- Bank believes customer is creditworthy and says yep
- Bank creates two accounts for customer, loan account and deposit account. Loan account is -$1 and deposit account is $1
- customer transfers $1 from their deposit account to someone else's account at a different bank in exchange for goods/services
- customer account at the bank is now loan account -$1 and deposit account $0
- Customer eventually needs a way to get $1 back from somewhere else to pay the loan back, else face bankruptcy proceedings etc etc
Commercial banks all agree with each other that they accept each other's demand deposit accounts as a form of money.
- Bank starts with $0 capitalisation or deposits - Customer goes to bank and asks for $1 loan - Bank believes customer is creditworthy and says yep - Bank creates two accounts for customer, loan account and deposit account. Loan account is -$1 and deposit account is $1 - customer transfers $1 from their deposit account to someone else's account at a different bank in exchange for goods/services - customer account at the bank is now loan account -$1 and deposit account $0 - Customer eventually needs a way to get $1 back from somewhere else to pay the loan back, else face bankruptcy proceedings etc etc
Commercial banks all agree with each other that they accept each other's demand deposit accounts as a form of money.