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| If a bank makes a loan, the loan is an asset to the bank on its balance sheet. There MUST be an offsetting liability created. 100% of the time without exception. The bank will make money charging interest but NOT by the creation of money in this regard.
Most often loan proceeds are deposited into a checking account. Sometimes a ledger account to be wired or a cashier's check. Small loans might be hard cash out. All of these are liabilities on the banks balance sheet intra business day. Now possibly at close of day or shortly after, those proceeds leave the bank, because borrowing to leave in a checking account is silly. When the money leaves the bank, the bank's cash position lowers. Cash (or money held at the fed or another bank) is an asset just like loans and bonds on a banks balance sheet. Loans pay better, so banks like loans. Cash pays the worst. Bank's job is to manage this all. If putting on loans, it's gotta be funded from something.
In short, the only way a bank actually makes profit is charging interest or fees. The money created when making a loan is always offset by a liability. | |
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How money is created
