There\’s an alarmingly large number of people who think that banks just create money out of nothing. You pitch up for a loan and they just magic the cash out of thin air, hand it over then charge you.
The eurozone crisis has left UK banks unable to raise the funding they need to make loans to businesses, evoking the spectre of the crunch that followed the collapse of Lehman Brothers.
If banks really did just create money then they couldn\’t possibly have this problem, could they?
The banks can only issue loans to companies and home owners if they can find sufficient funding on the markets.
That would be impossible, wouldn\’t it?
That banks must gain funding in order to make loans means that quite obviously, banks do not create money. The two positions are entirely exclusive.