How Banks Really Create Money: Loans Create Deposits
5 September 2025·4 min
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Here’s a myth you’ve probably believed your whole life: banks take deposits from savers and lend them out to borrowers. Sounds logical, right? But that’s not how it works.
In this video, we explain how banks create money, why loans create deposits, and how the money supply grows and shrinks in our financial system. You’ll see the full lifecycle of money — from creation to destruction — and learn what’s really happening when banks move reserves at the Bank of England to settle payments.
You’ll discover:
✔️ Why the idea that banks “lend out deposits” is a myth
✔️ How bank loans create brand-new money out of thin air
✔️ What happens when you borrow, spend, and repay a loan
✔️ The hidden role of central bank reserves in payment settlement
✔️ How deposits shift between different banks behind the scenes
✔️ Why money disappears when loans are repaid
This is one of the most important concepts in banking and money creation. Once you understand it, you’ll see our entire financial system in a completely new light.
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