If I put a dollar in my savings account and the bank loans it out to someone else, who has the dollar? It's on my balance, but it's in their pocket. How many dollars are there?
This is the question of money supply, it's very complicated but the TLDR is there is no fixed "all dollar" amount. This scenario just further muddies the question, but also explains why stable coins keep central bankers awake at night.
I don't think that's how banks work; at least in the US and England.
Below is an extract from an excellent article/tutorial from The Bank of England[1]
In the modern economy, most money takes the form of bank deposits. But how those bank deposits are created is often misunderstood: the principal way is through commercial banks making loans. Whenever a bank makes a loan, it simultaneously creates a matching deposit in the borrower’s bank account, thereby creating new money.
The reality of how money is created today differs from the description found in some economics textbooks:
1. Rather than banks receiving deposits when households save and then lending them out, bank lending creates deposits.
2. In normal times, the central bank does not fix the amount of money in circulation, nor is central bank money ‘multiplied up’ into more loans and deposits.
[1] https://www.bankofengland.co.uk/quarterly-bulletin/2014/q1/m...
Note that for every dollar you put into a U.S. bank account that's subject to reserve requirements (I believe just checking accounts?), the bank can loan out much more than 1 dollar, based on the legally required liquidity ratio or "reserve requirement ratio."
Note also that since 2020 that reserve requirement ratio is zero.
A zero percent reserve requirement does not lead in all cases to infinite inflation, because banks are also afraid of a default. Bank's desire to avoid defaults adds another fraction to their reserve ratio and limits money multiplication even when the Fed would technically allow it to proceed infinitely.
Another thing you should know is that Fed chairmen have said that Friedman's equation underestimates bank's ability to create money, because in practice the Fed will allow any bank that desires liquidity to borrow it. The Fed, especially post-great-depression, will happily loan banks however much they needed to cover their reserve requirements, meaning that even before the ratio was set at zero, the number of times a single dollar could be spent was decided primarily by a balance of interest rates and fear of defaults.
at the end of every month and especially every quarter the bank submits its capital ratio and a bunch of other calculations to the regulators. if the ratio isn't good it has to increase capital reserves. if the ratio is good it can do share buybacks and dividends.
They can't loan out more than the deposits they have.
If you could open a bank, accept 10 dollars in deposits, and loan out 100, you'd do it! You'd loan it out to your best friend and keep the cycle going until you're rich AF.
You can't loan out more than you have, but even loaning out 10 of 10 dollars has some risk - if someone comes for their money and you can't get your money back from the people you loaned it to. And it definitely increases money in circulation since it's not parked there. But it's not a magic money printing machine.
Bank regulations have moved one from having such a specific requirement. Nowadays, you essentially need a minimum amount of equity per risk-weighted assets. So you need something like $8 in cash for every $100 in loans you give out.
Ask someone with non-cash investments their net worth. They'll give you a number that includes a lot of non-cash assets. They can borrow against them. They expect to be able to cash many of them out, so they often spend as if they're "real" dollars. But they aren't "real" printed dollars.
Can you elaborate on this?