@NetRunner

See, that is indeed where our understanding differs. Any bank may create money, not just the Federal Reserve. The Fed is the only agency that can literally create it from nothing. All other banks in the system create demand for it based on the fractional system. They may only loan money based on the reserve ratio.

So, yes, banks want depositors because the amount of loans they can issue (and therefore the amount of incoming interest they can collect, which further becomes more money they can lend) is partly based on deposits. But, as your Wikipedia link points out in #6 of the process, "when a loan is granted, the person is generally granted the money by adding the balance to their bank account." They don't mean "instead of giving them cash or gold". They literally mean "granted the money"...the money is created in their account. Money which did not exist prior to the loan agreement.

So the bank gives you $10,000 while holding $1000 in reserve (10% reserve requirement). The bank also creates a $10,000+interest hole for you to fill and generates a monthly payment bill. At no point did the bank have $10,000 to give to you...as in, if you marked every dollar in the economy with a serial number dependent on who created it, they would all say "i was created by the Fed at the request of bank XYZ to pay out loan money to someone because they don't have it on hand". When you pay back your loan, the bank destroys the "hole" it created for you, but keeps the interest on the bank's balance sheet.

When someone cashes your $10,000 check, the bank then transfers $10,000 to that person's account, but that $10,000 is available partially because of deposits and partially because of incoming interest payments from people with outstanding loans...or other bank profits from investment or whatever. If the bank has $1M on deposit, they can create $10M in loans TODAY, and if each of those people all request cash immediately, the bank will not have it on its balance sheets. But, the Fed is allowed to create cash from nothing to pass on to the bank for the purpose of fulfilling these withdrawal requests. Yes, it does seem incredible. Yes, this is why people don't like fractional reserve banking.

So, even though the Fed is the one supplying the actual cash, it is the banks who are creating the demand for the newly created money. This is how banks loan more than they have...based on how much they have on depost with the local (or central, in the case of commercial banks) Federal Reserve branch.

We're saying a lot of the same things, but there is a difference.

EDIT: this is also the reason I belong to a credit union