[nootropicat]

No they don't, banks have accounts with the central bank. They also have their assets and liabilities. They have to manage the system so that they can manage external withdrawals. When assets outweigh liabilities it's a bankruptcy. When current demand for withdrawals exceeds short term liquid reserves it's a liquidity issue. At no point do banks create base money. A balance in a bank is just an iou for base (central bank's) money.

The only entity that creates money is the central bank. They may even accept mortgages from banks as collateral (including repurchase agreements) to inject new money into the system.

Regulations are supposed to prevent bankruptcy and liquidity issues, but even without any regulations regarding asset ratios, banks can go bankrupt or illiquid.

[hgomersall]

I suggest taking a look at what an actual central bank, The Bank of England, have to say on this rather than a lot of stuff on YouTube: https://www.bankofengland.co.uk/quarterly-bulletin/2014/q1/m...

[kd5bjo]

That document completely agrees with ‘nootropicat, except for a difference in terminology— What ‘nootropicat calls “money” the BoE calls “base money.”

(And, for the record, this is also what I’ve been meaning by “currency”)

[eru]

> At no point do banks create base money.

This is true, and most of the rest of what you are saying is also true.

> The only entity that creates money is the central bank.

This is not true. Banks really can take arbitrary assets and turn them into money. Just not base money!