Lending limits of banks

My understanding is if the bank has $1000 in actual cash reserves it can then create a further $9000 out of thin air in the form of a loan.

Not in cash, but as an electronic loan.

So it technically complies with the fractional reserve lending requirements as it has at least 10% of what it loaned out (created) still in reserve.

The total of the loan plus what it holds in reserve is $10,000.

That fact that the $9000 didn't exist prior to the loan being made doesn't matter... it's how money is created.

Yes, there is no limit  other than willing borrowers on the amount of money banks can create. Banks can make money as they wants.

Mariusm

Your link to Wiki provides the answer.  The article has good information, but is poorly written, so it is easy to miss the point that commercial banks do indeed create money, in fact much more money in aggregate than central banks.  In the USA the reserve requirement is in practice less than 10% so each dollar of deposits can be used to create over nine new dollars of loans, in theory.  In practice it is hard to do and bankers sit up nights trying to figure out how to increase their loans to creditworthy borrowers.  Kudos to you for studying the issue.  Few people make the attempt

http://en.wikipedia.org/wiki/Fractional_reserve

Travlin

The biggest lie about banks is, that they can only give credits of the amount of money they got first from other people. But that's simply not true!

Agreed but remember all we use for money is credit.

If I have a $1000 dollars as a bank, an have e.g. a minimum reserve requirement of 10%, I can theoretically actually give out credits for $10'000 (in checkbook money). For the law demands, that I always have at least 10% of the checkbook money as real money (central bank money). This means, that If the $1000 came from a customer, I can theoretically additionally give out credits for $9000 (as I have an additional $1000 demand from the customer who gave his money).

Sure I couldn't pay them out (in real money). But the whole system of banks actually is founded on the belief, that most money will remain on the bank deposits, and will not have to be paid out in real money.

If you have a 1000 dollars in a reserve account OR 1000 dollars in FRNs.  There is no law governing the amount of reserves that banks have to have (if any) its all just rules within the banking system.  Banks do not 'give' out credit, they extend (create) create when they issue new loans. The truth is banks have no reserves and all the need is a borrower.

The numbers in the checking account is real money, and is the real money in this system.  The FRNs or any other form of money cannot enter circulation until the check book money exsists.  It is not true (honest) money though because it is all based on interest bearing debt.

Sure I couldn't pay them out (in real money). But the whole system of banks actually is founded on the belief, that most money will remain on the bank deposits, and will not have to be paid out in real money.
 

And the bigger you are (as a bank), the higher are your chances, that you don't have to pay it out (in real money), for the chances get higher, that somebody else will have also an account at this bank, and so the bank can do the transfer, without needing real money.

Therefore being big is very advantageous for a bank. The bigger you are, the lesser the chance you will have to pay out, the smaller the risk if you go higher with the multiplication factor.

Banks have no risk because they never have to pay period.  Dale and Soderberg vs Federal Reserve Bank of Minneapolis proved that.  If you wanted the private commercial banks to pay its true they will get rid of their liability (destroy the checkbook money) and shift it to a Federal Reserve bank (FRN).  Both are just forms of credit money.  A FRN is a non-redeemable note on a private bank.

In basic principle, there's no difference between, how it is explained in the "Crash Course" and how it's really done. For on the bottom line you will always have the limiting multiplication factor (1/minimum reserve) of checkbook money vs central bank money either way. So the banks cannot multiply the money indefinitely!

But the way it is explained in the course would only be true, if the money would always have to be paid out, which is in reality not the case. So in reality it doesn't need to go over many banks to multiply the money. Even one bank alone can already multiply the money. And they do that (sure not to the theoretical limit, that would be too dangerous). The advantage of the bank: They get interest rates from many people, although they actually do not even have the money, or ever had the money. They just create checkbook money out of thin air and get interest rates for it. The only limiting factor is the demanded minimum reserve requirement.

The question is if we all have to collectivly borrow from the banking system and pay interest, where does the money come from to pay the interest?

This only a bank can do, for only if you have a bank license you are allowed to do this. If you would do this as a private person, it would be highly illegal, and you would end up in jail!

There is no law authorizing banks to create money, but we are trying to get one passed up here in Minnesota for the benifit of the people.  H.F. 610 and S.F. 65.