Bank Money Creation via Basic Accounting Customs

[Joe Leote]

Banks create money via debit of loan assets for an increase and credit of transaction accounts (checking deposit liabilities) for an increase:

https://youtu.be/R_C1Yahl8VA

Banks hold reserves (exchange settlement funds) with the central bank which are bank assets and central bank liabilities. When new loan funds are spent to the customer of a distinct bank the respective deposits transfer to another bank. Reserves also transfer with the deposits to clear interbank payment. A bank which intends to expand loans must replenish reserves via developing other liabilities from non-bank investors or must borrow reserves from other banks or the central bank. This is why banks pay interest on saving deposits, issue certificates of deposit, develop repurchase agreement liabilities, to keep interbank payments flowing through the reserve asset account. The non-banks also expand financial assets and liabilities using accounts receivable (assets) and accounts payable (liabilities). The financial economy expands as a network of dealers granting overdraft privileges with payment clearing via banks and the central bank. 

Joe