On the internet , there are lots of people claming that the banking system has an immense power because it can multiply money obtained by deposits ( 'make money out of thin air' ) and then lend this money just with the provision of the reserve ratio , according to the theory of money multiplier.

They say that asking a real collateral for money without any previous existence is a fraud. It gives a disproportionate power to banks.

However, they seem not to consider that when the banks multiply money they gain a liability towards the depositor , and every time they multiply money is always a new liability due to deposits , so in the end the only profit for the banks ,say in a mortgage , should be the charged interest and not the entire mortgage (if the creation hadn't a liability it would be true) as they claim.

Are my considerations good? Can someone underline other relevant factors? Is this theory a total nonsense?

  • $\begingroup$ (I translated “passivity” to liability.) This question describes the “money multiplier”, and there should be plenty of resources describing it. Labelling it a “conspiracy theory” in the question title makes this question fairly useless to other people. $\endgroup$ Commented Jun 3, 2020 at 12:17
  • $\begingroup$ I edited the title , maybe it's more suitable $\endgroup$
    – Tortar
    Commented Jun 3, 2020 at 12:22

1 Answer 1


At present, this question resembles three questions.

  1. Are people on the internet saying incorrect things about bank money creation?
  2. Is money creation by banks fraudulent?
  3. Is money creation by banks limited by the fact that deposits are bank liabilities?

These are questions that mainly do not fit the desired format of this website, so I will handle them very quickly. If there are follow up questions, it might be best to create a new narrow technical question.

  1. I would argue that bank creation of money has led to a lot of incorrect statements about it on the internet. Unless a particular statement is to be analysed, there is nothing else to say.
  2. The belief that bank lending is fraudulent money creation show up in some popular Austrian economics writing. The answer requires delving into the definition of “fraud.” It is safe to day that no legal system accepts that view, as that would imply that a significant portion of the financial system would lose legal backing.
  3. Yes, the fact that bank deposits are liabilities limits bank money creation. It is not the same thing as creating counterfeit banknotes, which are not liabilities.
  • $\begingroup$ thanks for the answer , I knew that It could be a bit edgy for the site but I wanted to know what other more expert people thought about the topic $\endgroup$
    – Tortar
    Commented Jun 3, 2020 at 13:08

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service and acknowledge you have read our privacy policy.

Not the answer you're looking for? Browse other questions tagged or ask your own question.