this post was submitted on 20 Jan 2025
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A somewhat political fact, but one that made some of my friends dumbfounded:
When a bank issues a loan, it generates that money literally out of thin air and credits that money to the loan account rather than using deposits they already had. For example, if you want to borrow $100,000, the banker approves the loan and doesn't hand over cash or move existing money around - instead, they just go on their system and credit your account with the sum, that's it.
While I think your point is true that its much more abstract than people realize. When I worked at a bank and we disbursed loans and credited/debited fees it was from "GLs" (General Ledger?) which were basically just separate accounts to help keep track. Like we had a "member service" one which was for basically anything with good reason. One time someone did a very large amount but he just basically got told to do it a different way.
Its all just in a computer. I could've accidentally credited someone a million dollars but it would've been realized when I tried to close my drawer and balance everything out. And the branch would have to be balanced at the end of the day so I assume the bank did as well.
On a related note banks take out loans from other banks. I think a lot of people don't realize that banks have savings accounts so they have money to lend.