Oh, I agree they have rules they need to follow. The way modern lending works is the bank makes you a loan and then goes looking for funds to cover its reserves by borrowing against your loan document. I'm sure they like to lend out depositors' money because it's cheaper, but they certainly don't need it.
They borrow from other banks if they can, but if not they borrow straight from the Fed at the "discount window". And when the Fed lends money it is literally created by changing a number in a computer somewhere. So ultimately that $1000 has been injected into the economy though the creation of money (which will get destroyed slowly as the loan is paid off).
The point, way back in the beginning, was that the money supply is really only constrained by the amount credit-worthy borrowers are willing to borrow at a profit to the banks. That's why the Fed discount rate has such a big effect on the money supply - by raising it they make unprofitable some portion of loans that would have been profitable at the lower rate.
I'm not sure if the central bank is technically part of the fractional reserve system. But is there fractional reserve system currency issuer without a central bank? I'm not aware of one.
Let me apologize for my tone as well.
Banks don't have to have the money before loaning it out
"the relationship between reserves and loans typically operates in the reverse way to that described in some economics textbooks. Banks first decide how much to lend depending on the profitable lending opportunities available to them ...It is these lending decisions that determine how many bank deposits are created by the banking system. The amount of bank deposits in turn influences how much central bank money banks want to hold in reserve (to meet withdrawals by the public, make payments to other banks, or meet regulatory liquidity requirements), which is then, in normal times, supplied on demand"
Link above is specific to UK but it's similar in most countries
See also https://en.wikipedia.org/wiki/Reserve_requirement#United_Sta...
"When an institution fails to satisfy its reserve requirements, it can make up its deficiency with reserves borrowed either from a Federal Reserve Bank"
in other words... banks lend first and account later, if there's a shortfall at the end of the day they basically get an automatic loan from the central bank
I deposit $1000 in the bank. The bank has an asset of $1000 cash and a liability of $1000 deposit payable to me.
The bank loans $900 to Jimmy. The bank has an asset of $100 cash and another asset of $900 of Jimmy's debt, payable to the bank. The bank has a liability of $1000 payable to me.
The bank profits from fees we pay to the bank and from interest on loans from the bank, but they have to have the money before loaning it out in the first place. They can't just loan you money out of nothing. If Jimmy shows up at the bank before I do, and Jimmy and I are the first two customers, the bank has no money to loan Jimmy and has to turn him down. They don't get to print it, which is what it sounded like you were saying. If that was a misunderstanding, I apologize; I've just run into a lot of misinformed and deluded goldbugs on HN before.
Really, what's going on is more of a double booking. Like on airlines, where they sell more tickets than they have seats based on the assumption that not everyone will show up, banks get to say my $900 belongs to me and Jimmy at the same time, and depend on having enough customers that we don't all ask for it at once, or else if there is a run on the bank, they've bought an insurance policy from the FDIC to cover that eventuality, and can borrow their own money from the FED as well.
Also, I'd be really surprised if anyone paid loan fees in the neighborhood of 10%. People these days can't be bothered to put down a 20% down payment for a house and you think they pay 10% in fees for a loan from the bank? Even if you could pull off that scheme, I'm pretty sure that's not how the reserve ratio works. The reserve ratio has to do with what percentage of a bank's deposits must be held in cash; it has nothing to do with money loaned by the bank, and it doesn't mean the bank can loan money it doesn't even have.