A little challenge for a modern monetary theory

Source: Adam Smith Institute
by Tim Worstall

“There’s an insistence out there that banks simply don’t lend out deposits. In one sense it’s even true. Banks lend money then look for the deposits to fund such lending. After all, capital plus deposits always does equal the loan book …. That the funding comes after the loan — that’s what the bank’s treasury department does — doesn’t change the fact that the deposits fund the loans. Therefore all this insistence that banks just create the money that they lend isn’t, in any useful sense, true. We’ve now got a test of it. Silicon Valley Bank just went bust. There was a bank run. Deposits fleeing the bank that is. But if deposits fleeing the bank make it go bust then clearly deposits are important to a bank.” (03/14/23)