# Can the money multiplier happen within a single bank / a single loan?

Many tutorials explain the money multiplier effect by involving a chain of banks (e.g. khan academy)

So if reserve requirements are 10% and bank A owns 1000€ reserves, bank A can lend 900€ to bank B; now bank B has 900€ reserves so it can lend 810€ to bank C, and so on to infinity. Making it $$M1 = \frac {1} {10\%} \times M0 =$$ 1000€ reserves + 9000€ loans.

Is this chain really necessary, or can simply bank A with 1000€ reserves issue a single loan of 9000€?

• I agree - bank A could just issue the 9000 loan, creating a 9000 deposit simultaneously. – dm63 Aug 16 '20 at 12:15
• I watched the video, and the description of the process seemed suspect. A bank can lend another bank its reserves, but that means the original bank can support less deposits. A bank with $1000 reserves can support$10,000 in deposits. However, in the real world, banks make loans, and then borrow reserves if they have losses from transfers. – Brian Romanchuk Aug 16 '20 at 12:55

If a customer gets a \$1000 transfer from the Federal Reserve, Bank A has a \$1000 deposit liability, and a new \$1000 balance at the Federal Reserve. Under the assumption that the bank was at its reserve limit, it has \$900 in excess reserves.
It can eliminate those excess reserves by making a \$9000 loan, as that creates a deposit with \$900 of required reserves. The growth chain ends there.