[>>>2. Do banks lend their deposits?<<<]
Which deposits do you mean, the deposits of their customers, or the deposits they themselves have with other institutions?
The deposits of their customers are the liabilities of the banks to their customers. They do not lend from their own liabilities.
1. I believe it's important to distinguish between "demand" deposits made to a bank, which entail payment of little
or no interest, and "investment" deposits (term deposits, time deposits) which return the market rate of interest.
Question: Where does the interest paid by commercial banks to their investment depositors come from?
If bank XYZ lends $10,000 to Mr. ABC, XYZ credits Mr. ABC's account in the amount of $10,000. If Mr. ABC writes a check to Mr. DEF, and Mr. DEF deposits the check into bank UVW, XYZ's account with the clearing bank is debited $10,000 and UVW's account is credited
$10,000.
The point is this: No individual bank creates credit by itself unless that individual bank is a monopoly. It takes the banking system as a whole in consortium with their customers. The monopoly of credit is the banking/financial system as a whole.
2. Please explain! Most of the nation's money supply is credit existing in the form of bank deposits. And
bank loans to individuals usually entail the creation by the lending banks of new deposits within their
borrowers' accounts, each of which is normally set up by a lending bank at the time of making a loan.
In such cases, how does money creation involve financial institutions other than the lending bank?
John Hermann
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