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🏦 How does a bank create money

How does a bank create money — mechanism, parts, and limits in plain language.

3
lessons
~10 min
to learn
🔢 Math
subject
Adults
level
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What you’ll learn

  1. Not a Vault of Pre-Printed CashExplain deposit creation via lending and the real constraints on banks.Loans create deposits as ledger entries. Capital, liquidity, risk, and regulation still limit the process.
  2. Reserves, Settlement, and the Central BankSeparate customer deposits, reserves, and currency; note policy weather.Reserves settle interbank payments. Policy shapes funding conditions. Cash is central-bank money you can hold.
  3. Myths, Multipliers, and Your AccountCritique simple multipliers and show repayment extinguishes deposits.Multiplier stories are incomplete. Deposits are bank liabilities; repayment destroys deposit money as loans shrink.

Questions this course answers

In the usual modern story, what happens on a bank's books when it makes a typical loan?

Lending typically creates a matched loan asset and deposit liability, expanding deposit money subject to constraints.

Match each idea to the better description.

Different monies sit on different balance sheets: your deposit at a bank vs banks' reserves vs cash.

What happens to deposit money when loan principal is repaid?

Repaying principal shrinks the loan asset and associated deposit liabilities.

Grounded in trusted sources

  • Bank of England quarterly bulletin explainers on money creation
  • Federal Reserve education resources on banks and money
  • ECB / central bank primers on reserves and monetary policy (overview)
  • IMF financial system education materials (high level)

Every Wunder lesson is built from real, reputable sources — never invented.

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