This is hypothetical but what would happen if you cannot lend more money than you have? Say you have £100, the maximum you can lend is £100. But somehow you lend £200 to Joe, and Joe spends all of it on chocolate and eats it all, but doesn't pay you back. So have you effectively just created an extra £100 out of thin air and inserted it into the money supply? Is this what banks are doing when they lend out more money than they actually have? What if we abolished this ability, what would happen? (just a guy interested in economics so apologies for my ignorance).
Thanks!