At root if you transfer your deposit to another bank that target bank becomes the depositor in the source bank. Or the transfer can't happen.
Banks then shuffle those deposits they have take on around until they are happy with the risk. That's interbank clearing.
But the 'bank deposit' itself is just an entry on the liability side of the bank's balance sheet, they can't profit from that. The bank might pay interest on it to the depositor because they want to encourage them to deposit more, because deposits coming in give the bank cheap liquidity, so stop them having to borrow reserves from other banks etc. to maintain liquidity.
I'm not saying you're wrong. It just seems like something is missing from the picture in your explanation.
When I opened my bank account, I deposited say £5000 cash. What does the bank do with this money?
I was under the impression that the bank doesn't actually keep this £5000 in cash, only £500 maybe, and uses the rest to lend money, but you seem to be saying that they can't actually use my deposit.
Banks can also attract reserves by borrowing in money markets (cheap but short term) or issuing long term debt (stable but expensive), or by persuading customers to open accounts and keep them in positive balance. In practice it will use a mix of all three, attempting to match the maturity profile of its liabilities.
The central bank will also create reserves and lend them to your bank if your bank can't raise them elsewhere for some reason. But borrowing from the central bank can spook investors, and it's also expensive.
A bank that doesn't have reserves can't settle its debts to other banks (like the debt you incurred by moving your £5000) and so can't function in the banking system. It has to get reserves from somewhere, and persuading consumers to park deposits in an account is one useful way to do so.
It burns it. Probably quite literally.
The cash represents a transfer from the central bank into the commercial bank's deposit account at the central bank - for which it receives an interest rate.
Cash is just a receipt for deposits held at the central bank.
An additional point of reference is the Basel rules, which are pretty clear on this, if you care enough to read a few dozen pages of banking regulation.
> “And with what do the banks lever up their capital? (What is the indirect object of that sentence?) The answer, of course, is deposits.”
Incorrect. It’a a little more abstract than that. Bank credit doesn’t exist as anything but numbers in a database. Deposits are IOUs from the bank, which are increased when the bank lends, and mortgages are IOUs from people to the bank. If everything just stayed within the single bank, they wouldn’t need any existing deposits at all, or any reserves! What you need the reserves for (one source of which is incoming deposits from other banks, or cash deposits, or cheques from the Government) is interbank settlement. But the bank needs only a small fraction of the actual volume of transactions, because they are generally going both ways, and transfers are only a small fraction of the actual amount of bank credit that exists. That’s how the bank maintains solvency.