More or less. Long story short, when money is lent in a bank, it’s then deposited elsewhere, and then it can be lent again, such that with a fractional reserve of 10% you can ultimately multiply the amount of money in all deposited accounts by 10. In other words, a whole bunch of money just got created. It’s not central money, but it’s still money.

You could maybe try to counter with "but but but bank runs", but if this happens the state tend to print central money to compensate, thus actualising the money creation that happened with fractional reserve banking alone.

> If we didn't have fractional reserve banking, it feels banks could not lend AT ALL.

They could lend their own money.

> Also, what does "more democracy" concretely mean here, as nice as the phrase is?

In this particular instance I’m thinking of full reserve banking (deposit banks turn back into glorified vaults), print central money for mortgages (and burn that money when it’s paid back), and democratically (with congress, referendum, whatever) define clear criteria about who can contract mortgages, and what for. Criteria which would then be enforced by mortgage clerk, on behalf of the state.

The point here is that instead of letting private interests that want to make money decide, the people decide (possibly through elected officials) of the applicable criteria.

That’s the thing though, they could lend out and pay interest on “savings” with the understanding that the money might not be immediately available for withdrawal as it’s “in the wild”.

And a different class of banking, we’ll call it “checking”, would allow for immediate withdrawal as it’s backed by 100% reserves and doesn’t pay interest because it doesn’t make any money for the bank. Heck, they might even charge for the convenience of warehousing your money and being able to transfer it to any other economic actor you chose through a novel intra-bank clearinghouse.

What this doesn’t allow is for banks to lend out 90% of every dollar they take in — even ones available for immediate withdrawal.

As we’ve seen from the recent SVB[0] catastrophe if people assume their money is immediately available and it isn’t there’s big problems because everyone rushes to get their money right now instead of maybe getting their money at a later date. Big problem…

This is all stuff they figured out centuries ago, the main problem is it cuts into the banks’ profits so it isn’t done this way.

[0] as an illustration of the problem, they didn’t seem to get in trouble due to fractional reserve lending but from the liquidity of their assets.