This is a simple model demonstrating how the banking system can accept a cash or electronic deposit, and, through the practice of fractional reserve banking, create new money (typically electronically) in exponential proportion to the fractional reserve ratio.
Try experimenting with any of the model's values. The ones in bold are the most interesting.
Notice how quickly profits increase with a low reserve ratio, or with large spreads between deposit and loan rates - even with low rates such as 1% and 2% respectively:
Interest paid out to customers for their deposits is shown in red.
Interest earned from loans to customers is shown in green.
Reserves corresponding to each deposit, and which cannot be loaned out, are shown in gold.
|Account Number||Deposit||Interest Out||Loan||Interest In||Reserves|
Wikipedia article on Fractional Reserve Banking.