Fractional reserve banking doesn't exist anymore. Banks lend against their loss-absorbing capital, not their reserves. Reserves are just used for inter-bank settlement.
Frances Coppola [0] has written fairly extensively on this topic, as has the Bank of England [1]
Coppola (and most other people claiming to "reveal" something profound of financial system when they tell that banks do technically not lend deposits forward) is confused in my humble opinion.
There is no need for double entry accounting trickery nor loans to create money. All bank needs to do is to say that they owe me money and they have created money at that very moment.[1] Simple as that. And they do create money without lending all the time! It is nothing special. When a bank "pays interest" to your account, do you think there exist some new loan that is needed for that money to exist? Nope. Bank just decides that now it is time to add some more money to your account. That's it. Or when bank pays salaries to the personnel or dividends to the shareholders? Nope. No lending associated whatsoever. Just money added to their bank accounts. (for simplicity's sake, I assume that the stakeholders have their bank accounts in the same bank)
[1] Which to me implies that there is not that much interesting happening at that point. I mean, a bank could enter a few centillion dollars to my account, and technically the money would be created. But in practice that is laughable. Nobody in their right mind would imagine a second that the bank would be solvent and actually be able to pay me the money, so in reality that money does not exists (no credit...). So even if the traditional model of banks lending deposits forward is technically even more wrong than the banks create money from double entry accounting trickery, in reality that describes much better what actually economically is happening in the financial industry. But that is just my opinion...
Where are you getting this information from? Surely interest on deposits is accounted for as a funding cost and is paid out of the bank's revenues (same for staff costs).
I don't know why you're calling double accounting "trickery". It's literally the way a bank operates. I mean, it's enshrined in law for god's sake. A public company has to publish accounts every year, and the double-entry analysis you see in most discussions of money creation shows where assets are entered on the balance sheet.
Mainly my own personal thinking. No other sources.
> Surely interest on deposits is accounted for as a funding cost and is paid out of the bank's revenues (same for staff costs).
Of course. But before those are paid, they do not (need to) exist anywhere (but in the profit account if you want to take an accounting view)
> I don't know why you're calling double accounting "trickery".
Because that's what these people claim that double entry accounting is some magic wand that is needed to create money. You could operate a bank without double entry accounting that would not change the economics of the bank operations anyhow. You do not need to have double entry accounting to make a loan nor write an IOU. I Can write you an IOU that says that beefield will pay 10 bucks to the holder of this paper and you could use that as a money to buy stuff at least from me and my mom. Not sure if anyone else would trust that... No lending, no double entry accounting needed.
> Mainly my own personal thinking. No other sources.
I'd suggest reading a summary of the Basel rules before contributing to a discussion on money creation and banking. Wikipedia has a halfway decent one.
Frances Coppola [0] has written fairly extensively on this topic, as has the Bank of England [1]
[0] http://www.coppolacomment.com/2017/10/money-creation-in-post... [1] https://www.bankofengland.co.uk/quarterly-bulletin/2014/q1/m...