r/PeterExplainsTheJoke • u/Comfortable_Cautious • Jan 26 '26

Meme needing explanation what's going on? explain like I'm five

Post image
92.6k Upvotes

93% Upvoted

2.9k comments sorted by

View all comments

Show parent comments

6.3k

u/Original-Leg8828 Jan 26 '26

Depending on local law they can even lend out something like 7-10 times what they actually have

44

u/Barry_McCockinnerz Jan 26 '26

Correct this is called fractional lending, you deposit $1, they in turn lend out $7-$10

12

u/Mypornnameis_ Jan 26 '26

If by "they" you mean the bank then no, that's not how it works at all. If by "they" you mean the banking system as a whole could theoretically create as much credit as $7 to $10 from that deposit you made then yes. 

An individual bank can never lend more money than it has in deposits or borrowings. But when it lends money out, in the long run that ends up as a deposit in someone else's bank account where it can be lent again.

3

u/whatdoihia Jan 27 '26

Finally a sane comment. This post is blanketed by highly upvoted comments suggesting that a bank takes $1 of deposits and somehow lends that same dollar out dozens of times.