How Banks Create Money

You can't make money out of thin air…unless you're a bank.

Today we learn the surprising truth behind the vault and learn what happens to the hard-earned money we deposit.

The basics of banking has always been that banks connect people in need of money with people holding excess money in need of a safe place to store it. As we learn in this video, banking goes way beyond this simple transaction.

Another major form of income for banks that was not heavily covered in this video includes fee income. This includes things like account service fees, credit/debit card fees and more.

Many concepts in this video were simplified for the sake of explaining concepts. For example, in the real world, people that borrow money typically don't hold on to it as cash and will instead use it to buy goods and services. The person/company receiving that payment will then deposit the money in their own accounts. Feel free to ask questions in the comments below for a deeper explanation on anything covered (or not covered) in the video and I will try my best to answer.

This video was influenced by the following:

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[Rainleemusic]

I just about to go to sleep, then my brain start asking how bank makes money. Now that I got the answer, I may sleep in peace 👌🏻

[alfredoclarajr.]

When I watched the first 30 seconds, I knew I'm in a right video.

[stuartporteous]

Banks don't need deposits to issue loans. They create brand new money when they issue a loan. Central banks have stated this fact for quite some time.

[topapps]

keep it up bro you are making a great content
it's so sad that u didn't upload a video for the last 3 months

[sparksolutions]

Great video!!! This stuff is hella interesting

[raymichael]

This helped a lot. I was reading an Economics book and I was kind of confused with the 10% reserves and creating the money part. Thanks!

[thabangkanti]

Thanks for the video💯just what I need to learn📝📝📝

[ssamerica]

Tbh I came here so I could more easily understand the Kurzgesagt video. Thank you

[ganganaperera]

I was reading Rich Dad's Cash flow quadrant and didn't quite understand the concept . This video explained it perfectly! Thanks

[neilkadakia]

Great video. Subscribed. How did you make your animations? What software?

[matthewlaughlin]

Training to be a Teller and this helps more than the modules!

[karfar]

Banks never lend deposits. Banks create money out of nothing whenever they make a loan. The fractional reserve theory of banking, like the financial intermediary theory of banking is complete bunk. The credit creation theory of banking is accurate.

[heavymeddle]

This video explained what I haven't understood in my 49 years

[hyeeagle]

Correction… Bank give you 0.1% interest to your savings account not 1.0%

[Zularus]

This video is the neo classical view on banking, this is not how banking actually works. Banks create loans in a debt credit relationship, the bank creates money out of nothing but once the money is payed back the money is destroyed.

[JohnDaniels]

It is was worse that this, when a loan is created the money is created and the bank gets to keep the interest.

[laurissamiller]

I am sure you know the reserve requirement was lower to 0 in 2020. I liked the video, but it would be nice if you emphasized that all bank money is created. What the Federal reserve does is supply the base for money creation. Other than cash the money created by the federal reserve is held in the reserve accounts in banks.

[irmansyah]

The explanation video about banking is very clear, helpful and increases our knowledge. Thank's 🙏🙏🙏

[SkystruckOnline]

WHO THE FUU DOWN THUMBS THIS? Fantastic content!!!

[Wisdomseeker]

So how else do we expect banks to make loans? Obviously they need to loan out money deposited by others and make it available for the depositors to withdraw