>>14068131From 2014 article op sources
Three hypotheses are recognised in the literature.
According to the financial intermediation theory of banking, banks are merely intermediaries
like other non-bank financial institutions, collecting deposits that are then lent out.
According to the fractional reserve theory of banking, individual banks are mere financial
intermediaries that cannot create money, but collectively they end up creating money
through systemic interaction. A third theory maintains that each individual bank has the
power to create money ‘out of nothing’ and does so when it extends credit (the credit
creation theory of banking). The question which of the hypotheses is correct has far-reaching
implications for research and policy. Surprisingly, despite the longstanding controversy,
until now no empirical study has attempted to do so.
Majority of individuals believe money is created by government in a mint building. They think a bank loan works the same as a regular loan. Like if you loan $20 for gas, you take that bill out of your wallet and give it in hopes you get it back. A bank prints the $20s from nothing and hands it to you
