Nope. This is the toy model of money and banking taught in high school.
When a bank makes a loan, it creates money. The fact that there are stabilising deposits is a fortunate convenience. This is why leveraged finance is inherently unstable. The BoE had a good paper about this.
The bank must reach some level of capital requirement to make this loan. In other words, if the bank does not have enough reserves, they cannot make this loan.
The bank can use customer deposits as part of their reserves. They can also borrow from another bank (presumably, paying them interest). Lastly, i think central banks also have a reserve borrowing method (but not sure about this).
No, they don’t. We force them to through fiat. But credit isn’t created from money—credit is money. Left to their own devices, financial systems create as much credit as the market will bear, then the market shifts, money vanishes and voila, a panic.
"we force them through fiat", is just the same as "we force everybody to not murder and steal".
But - what stops banks from creating infinite money? There is a byzantine system of rules laid out by the Basel Accords and national regulators within that. That system limits the activities a bank can conduct, lays out rules for the way it must go about business it can conduct, and sets capital requirements.
There is nothing close to a full reserve and the system is not defined in those terms. Rather, there are ratios. If you have so many AAA rated treasuries posted with your central bank, then you can grow your balance sheet by X. But for B rated investments, you can only grow your balance sheet by Y. When a commercial bank issues a loan, it literally creates money.
The fact that a bank takes an illiquid asset - your promise to pay them back - and turns it into a liquid claim on themselves is not creating money out of "thin air". Your promise to pay the bank is not "thin air" as you will quickly find out if you break your promise.
I assume they would know.
Everyone always brings up the fact that banks create money out of thin air when issuing loans. Nobody ever mentions that the inverse happens again at the other side.
I'm not sure how much it's because everyone just parrots the factoid that "banks create money" without understanding it, or they are deliberately trying to mislead people into distrusting the banking system.