@Chali & cnn. It is reserves and capital that limit how much a bank can lend...not customer deposits. The last time you took a loan how were the funds disbursed? Bank Transfer? Bankers Cheque? And what are they drawn on? A Deposit A/c. Clearly it wud be difficult to claim that Banks made their loan from your savings account becoz your savings account balance never changes (just check at your ATM statement every 5 minutes, it's always the same figure you left). The banks have no money, all they do is create deposits (create credit).
So if a bank can make a loan (to govt or private) which results in the creation on a deposit (on which a check can be drawn) then aren't assets and liabilities growing respectively? Why banks need to attract customer deposits is becoz some of the loans written are made to customers who bank with another bank resulting in a transfer of funds...since banks lend to each other everyday at the end of the day all they do is transfer the net amount of these funds.
But the fact is that when you go to a bank for the first time as a new customer and take a loan they create a deposit account for you, that is the accounting entry.
“We are the middle children of history man, no purpose or place. We have no great war, no great depression. Our great war is a spiritual war, our great depression is our lives!" – Tyler Durden