The TBTF banks. The shadow banking system where a lot of car and other consumer loans come from.

Some local banks as you say have trouble finding enough profitable and safe loans to cover their deposits.

But overall, if you look at total debt in the system, and real assets backing it up, there is much more money loaned out than there was ever base money created. That means that the rest of the money in circulation buying goods was created by credit.

Banks may be having trouble right now finding credit worthy borrowers and making loans. But that is not always the case and not the case that got us to the debt levels we are currently at. A lot of money is loaned over night in the repo market. This is high leverage money. Usually government securities that are used as collateral are backing this lending. If this high leverage market binds up, then we will see (as we did during the financial crisis when banks were afraid to lend in the overnight to other banks because no one knew who was still going to be solvent) we will get to see where a lot of the fractional reserve lending is taking place.

John