> In your worldview, where does the money a bank needs to operate from?

The answer in the US is simple: the Fed.

A bank can make an infinite amount of loans. They are not constrained by anything.

The only "limitation" they have is the future default rate of the people who accept loans from them.

The way a loan works is: they make a loan to someone and then "just in time", they borrow the money from the Fed to cover that loan.

Now, many banks take customer deposits. I think there are 2 reasons they do that:

1. Deposits may be less expensive than borrowing from the Fed.

2. Account holders are warm leads for future loans.

But in principle, a bank doesn't have to take any deposits.

>The way a loan works is: they make a loan to someone and then "just in time", they borrow the money from the Fed to cover that loan.

Ehhh, how does that work exactly? They go up to the discount window and borrow from the Fed every time they issue a loan?

> how does that work exactly?

I don't know. I don't work at a bank.

But loans aren't typically available immediately - they take time to clear. It doesn't seem unreasonable to me that they'd bundle the day's loans (or maybe a few hours at a very large bank) to limit the number of transactions they'd have to make.

The money that gets borrowed from the Fed is used to settle balances between banks. When a bank originates a loan, they just add a number to an account. The money doesn't come from anywhere. This works mainly because most money transfers are electronic.

tl;dr yes, banks create money out of thin air. It's been this way for decades.

  A bank can make an infinite amount of loans. They are not constrained by anything.

They are constrained by capital and/or reserve requirements

  The way a loan works is: they make a loan to someone and then "just in time", they borrow the money from the Fed to cover that loan.

Nope. Banks can borrow against their government securities from Central Banks by "rediscounting" during discount windows, if they need extra liquidity. Note that this is not the preferred method since Central Banks usually charges a premium. These are secured loans.

See https://www.federalreserve.gov/monetarypolicy/discountrate.h...

> A bank can make an infinite amount of loans. They are not constrained by anything.

That's incorrect, there are very strict limits on the solvency ratio placed on the banks that you usually deal with.

https://www.investopedia.com/ask/answers/052515/how-are-risk...

Banks don’t have far more loans than deposits. When they make a loan most of the money is just redeposited, so effectively each oringal deposit gets 10x’d by people just leaving the money in the bank. That’s how fractional reserve banking and “creating money out of thin air” works.

If none of the loan money was redeposited than the bank couldn’t create new money.

You are thinking of a nation - and even a single bank - as a closed system. But this is an oversimplification that makes it impossible for you to make steps in your understanding of how this all worked. I've worked for a bank, both on the 'banking' side and on the IT side. One of the first things that gets drilled into your head is that banks create money. With every loan on the books more money gets put into circulation. There are some restrictions on how much you can put into circulation and there are some restrictions on how much cash you have to have on hand compared to the number of deposits that you have lying around.

But a bank could easily (as long as the bank is 'solvent' according to the local central bank) write a loan will in excess of it's deposits, technically it need not have any deposits at all.

> can you explain how it is possible for a bank to have far more loans on their books than they have deposits (see: fractional reserve banking)?

Fractional reserve banking is about having more deposits (on the liability side) than reserves (on the assets side).

I won't say that it's not possible for a bank to have far more loans on their books than they have deposits (they could finance themselves differently) but I'm not sure if that actually happens. Can you give an example of a bank having far more loans on their books than they have deposits?