Banks can also get loans from other banks if one of their customers requests an amount that is above their limit. They will also invest the money that they get in deposits and in interest in the stock market.
I must offer a slight correction, here. There is a common confusion between deposits and cash on hand. Cash in hand refers to, say, what’s in the bank’s vault that day.
Deposits represent the total liability the bank has to its depositors, namely the sum of money that has been deposited in the bank in the depositors accounts.
Cash on hand refers to the physical bucks under the bank’s roof at any point in time.
Referring to
as Slipster put it is to mix two different concepts. I.e., banks do issue loans in excess of their cash on hand; banks do not issue loans in excess of their total deposits.
Ya know, Cecil explained all this years ago: How much money is there? With the U.S. borrowing so much, why aren’t we broke?
Good cite there, dtilque. Of course Unca Cece has explained just about everything during his tenure in a clear, if condensed manner. I only posted what I thought addressed the concerns of the banking conspiracists in their paranoia re the money multiplier.
Now as for how the Fed really operates, I recommend Secrets of the Temple. Despite the title sounding like an exposè of government intrigue it is a pretty clear explanation of the Fed’s day-to-day role in the American economy.