Answer · confidence: partial
How do banks make new money when they lend, according to central banks?
Research question: How do commercial banks actually create money when they make loans, according to central banks themselves?
According to the Bank of England as reported by Economics Help, the main way money is created is through commercial banks making loans, which creates a deposit in the borrower's account 8. When a bank makes a loan, it records a loan asset and an equal deposit liability, so the broad money supply rises by the full value of the loan 11. Former Governor Mervyn King likewise said that when banks lend, they create private money by crediting the customer's account 7. The records also show that bank reserves change as a result of deposit creation, so reserves do not drive money creation 2. The newest fact is labeled today, and the newest dated source is from 2025 313.
Checked 2026-10-18. Only documented and supported facts are used.
Dig deeper on this questionSources
[1] supported
The paper frames financial intermediaries as creating money-like liabilities by backing them with safe and opaque assets, though this is presented as a hypothesis it tests rather than an established central bank account of loan-based money creation.
"we hypothesize that intermediaries create money-like liabilities by backing them with assets that are safe and opaque, thereby minimizing information sensitivity."The Impact of Private Money Creation: Asset Allocation and "Opacity Discount" in Bank Lending (2021)
[2] supported
Bank reserves change as a result of deposit creation, so reserves do not drive money creation.
"Bank reserve quantity changes are an outcome of deposit quantity changes (money creation) and not the driver thereof."Money Creation: Reflections of an Ex-Central Banker on Exogenous/Endogenous Money (2012)
[3] supported
When commercial banks make loans, they expand the amount of bank deposits in the economy.
"When commercial banks lend money today, they expand the amount of bank deposits in the economy."Money creation
[4] supported
The majority of the money the public uses for transactions is created by the commercial banking system as bank deposits, and bank loans expand the quantity of those deposits.
"However, the majority of the money supply that the public uses for conducting transactions is created by the commercial banking system in the form of commercial bank deposits. Bank loans issued by commercial banks expand the quantity of bank deposits."Money creation
[5] supported
Changes in reserve requirements are only one of many sources of changes in bank liquidity, and the central bank accommodates these at the policy interest rate.
"Reserve requirement changes are just one of many sources of changes in bank liquidity, which are happily accommodated by the central bank at the policy/key interest rate, to make it effective."Money Creation: Reflections of an Ex-Central Banker on Exogenous/Endogenous Money (2012)
[6] supported
Contrary to popular belief, most money is not created by central banks, because the banking system can expand the money supply far beyond the reserve deposits the central bank creates.
"The banking system can expand the money supply of a country far beyond the amount of reserve deposits created by the central bank. This means that, contrary to popular belief, most money is not created by central banks."Money creation
[7] supported
Mervyn King, then Governor of the Bank of England, said that when banks lend, they create private money by crediting the customer's account.
"When banks extend loans to their customers, they create [private] money by crediting their customers’ accounts."Banks, the Government, and Money Creation Fenghua Song∗ Anjan Thakor†
[8] supported
The Bank of England says the main way money is created is through commercial banks making loans, which creates a deposit in the borrower's account.
"The principal way in which they are created is through commercial banks making loans: whenever a bank makes a loan, it creates a deposit in the borrower’s bank account, thereby creating new money."Banks and the Creation of Money - Economics Help
[9] supported
The Bank of England says this description of money creation differs from the story found in some economics textbooks.
"This description of how money is created differs from the story found in some economics textbooks."Banks and the Creation of Money - Economics Help
[10] supported
Most money in the modern economy is bank deposits, and its quantity is set through commercial bank lending rather than directly by the central bank.
"Most money in the modern economy is bank deposits. This is not determined by Central Bank directly but through commercial bank lending."Banks and the Creation of Money - Economics Help
[11] supported
When a bank makes a loan, it records a loan asset and an equal deposit liability, so the broad money supply rises by the full value of the loan.
"Creates a loan asset for £2,000 and a deposit for £2,000."Banks and the Creation of Money - Economics Help
[12] supported
The amount of new money created by a bank is equal to the entire value of each loan.
"The amount of new money created is equal to the entire value of each loan."Banks and the Creation of Money - Economics Help
[13] supported
The paper notes that banks create new deposits mechanically when they make loans, which is why a simple regression of loan growth on deposit growth is biased by reverse causality.
"not just because of reversecausality(bankscreatenewdepositsmechanicallywhentheymakeloans),butalsobe-"Hand-to-Mouth Banks: Deposit Inflows and the Marginal Propensity to Lend (2025)