In this article, we will demonstrate that, on a macro level, the banking sector creates money by extending credit, but that does not mean each individual bank can create unlimited supplies of money. A bank actually has to look for financing when it wants to provide a loan. We refer to this as the “money creation paradox”. It simply isn’t true, as is sometimes concluded, that because a bank creates its own liabilities (deposits) when extending loans, it can therefore extend credit and create money without bounds.
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