There is bank which have account of three persons :--

A = 900 dollar in account
B = 900 dollar in account
C = ZERO dollar

Now if C went to same bank & take 900 dollar Loan from bank on ZERO percent interest rate for 3 years. Now when bank give Loan to this person C then a new 900 dollar money is born.

Now C did not spend that money & keep the money in his account.

Then person c returns this money back to back from his salary :--

1st year : 300 dollar
2nd year : 300 dollar
3rd year : 300 dollar

So he return his loan amount of 900 dollar back to bank.
So now Bank will have following Reserves, 900*4 = 3600 Dollars :--

A = 900 dollar in account
B = 900 dollar in account
C = 900 dollar in account which he took as LOAN
900 dollar returned to bank after 3 years

So who is the owner of this new 900 dollar returned to Bank after 3 years by C ?

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  • 7
    The two answers you've received tell the whole story. You seem to be concerned about the "new" 900 dollars that the bank has accumulated, but you've answered your own question - that "new" money came from C's salary. The entire rest of your question nets out to zero and can be ignored as a red herring.
    – dwizum
    Commented Oct 21, 2019 at 12:42
  • 4
    I'm voting to close this question as off-topic because this isn't about personal finance. Commented Oct 21, 2019 at 18:38
  • 6
    Now run the same scenario from the other perspective: remember, when you deposit money in a bank, you are loaning that money to the bank. Deposits in a bank are not assets of the bank, they are liabilities. Commented Oct 21, 2019 at 19:04

4 Answers 4


The act of lending doesn't create money.

Before the loan:

A = 900 credit
B = 900 credit
C = ZERO dollar
Bank = 1800 liability
Result = 0 balance

At the moment the loan is made

A = 900 credit
B = 900 credit
C = 900 credit and 900 liability for a net balance of ZERO
Bank = 2700 liability and 900 credit for a net balance of 1800
Result = 0 balance

During the next three years each customer makes multiple deposits and withdraws. Lets us assume that customer A and B have a net inflow of 500 dollars each. But customer C has a net inflow of $900 which is used to pay off the loan.

At the end of the three year 0% interest loan and the net of all the transactions

A = 1400 credit
B = 1400 credit
C = 900 credit and 0 liability for a net balance of 900
Bank = 3700 liability and 0 credit for a net balance of 3700
Result = 0 balance

Of course normally there would have been interest charged on the loan and interest paid by the bank into the bank accounts. It would have made the example more complicated. But the the act of lending didn't create money.

  • So loan given by bank becomes its credit.. ? But how can you say.. at the end of three years "C = 0 credit and 0 liability" .. C is already having 900 $ in his account.. and then he earned salary from his employee & returned 900$ loan back to the bank... so it should be .. C = 900 credit and 0 liability
    – user6363
    Commented Oct 21, 2019 at 10:55
  • Also for Bank it should be .. "Bank = 2700 liability and 0 credit for a net balance of 2700"..
    – user6363
    Commented Oct 21, 2019 at 10:58
  • 2
    I'm surprised you didn't mention fractional reserve banking.
    – RonJohn
    Commented Oct 21, 2019 at 13:13
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    "For normal transactions like this involving normal banks with normal customers, lending does not create money. But when the Federal Reserve loans a member bank money, it can create money out of nothing in order to do so. In that circumstance, loaning does create money." is not correct. Any loan can lead to an increase in M1 (assuming the money doesn't just land back in a savings account or something similar). Further, the Fed cannot create money out of nothing - only the Treasury can do that, and the Fed has nothing to do with the Treasury (despite the "Federal Reserve Note" printed on money)
    – asgallant
    Commented Oct 21, 2019 at 19:39
  • 1
    @asgallant That's not quite right either. If/when the Fed conduction an open market operation, it takes a treasury onto its balance sheet, and increments the bank's account. That increment comes from nowhere, no account decreases in corresponding value, it is money (though not physical) created from nothing.
    – mbrig
    Commented Oct 21, 2019 at 21:56

According to your scenario:

  • A and B are not party to any transactions, so they can be set aside;
  • C borrowed and returned money without incurring interest, so we can set the loan aside as well.

That leaves the money C earned and accumulated. In your scenario, that accumulated $900 belongs to C.

  • 2
    Simplest deduction, no complicated examples and math needed, nice.
    – Timmetje
    Commented Oct 21, 2019 at 14:24

You are taking the view that taking out the loan creates money. I would argue whether this is actually a useful view to take. But it is a legitimate view, if not a particularly useful one.

But if you take that view, then you also need to accept its consequences on the other end. If taking out the loan (and leaving it in your account) creates money, then paying off that loan destroys the money.

So the answer is that no one owns the money. It was created by the loan, and it existed only for the duration of the loan.


Let's break it down into more steps so it's clearer. We can ignore Customers A and B because they have no impact on anything between the Bank and C.

The bank makes a $900 loan to C. Let's say the bank has 10,000 in reserves, and hands him the money in cash:

Cash: 10,000 - 900 =        9,100
Loans Receivable: 0 + 900 =   900

Customer C:
Cash: 0 + 900 =         900
Loan: 0 - 900 =        -900

You can see the transaction adds up to zero on both C and Bank's side.

Now let's say Customer C immediately deposits the $900 to his account at Bank:

Cash: 9,100 + 900 =          10,000
Loans Receivable:               900
Customer Deposits: 0 - 900 =   -900

Customer C:
Cash: 900 - 900 =         0
Loan:                  -900
Bank Account: 0 + 900 = 900

The bank gets $900 in Cash, but along with it comes a $900 liability in Customer Deposits - this is because they "owe" Customer C $900 - he could come and withdraw the money at any time.

Now, let's say Customer C gets paid at his job (in cash) and makes a $300 loan payment:

Cash: 10,000 + 300 =          10,300
Loans Receivable: 900 - 300 =    600
Customer Deposits:              -900

Customer C:
Cash:     salary - 300
Loan: -900 + 300 =  -600
Bank Account:        900

After 2 more loan payments of $300:

Cash: 10,300 + 600 =           10,900
Loans Receivable: 600 - 600  =      0
Customer Deposits:               -900

Customer C:
Cash:  salary - 300 - 600 = salary - 900
Loan:             0
Bank Account:   900

The bank has $900 more than at the start, but, that is C's money - he can come and withdraw it at any time, then the Bank will be left exactly where it started:

Cash: 10,900 - 900 =       10,000
Loans Receivable:               0
Customer Deposits: -900 + 900 = 0

Customer C:
Cash: salary - 900 + 900 = salary
Loan:                     0
Bank Account: 900 - 900 = 0

Customer C has more than he started with but that's because he got income from his job.

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