Banks create money out of thin air when they originate loans. Various regulations and central bank activities are designed to control this process, but they are somewhat indirect - they don't tell a bank 'this is exactly how much money you are allowed to create', instead they enforce things like capital ratios and provide liquidity in various ways, and the money creation is then carried out by the bank rather organically.

And can’t they currently set whatever rate they want for that still?

Indeed. Strongly influenced by the ambient financial and regulatory environment of course.