# Banks do not create money out of thin air CEPR Summary::This article seems to argue that banks make money from loans. # References Clipped from [Banks do not create money out of thin air | CEPR](https://cepr.org/voxeu/columns/banks-do-not-create-money-out-thin-air) at 2024-07-01. The authors: [Pontus Rendahl CEPR] at [Pontus Rendahl](https://cepr.org/about/people/pontus-rendahl)  [Lukas B. Freund CEPR] at [Lukas B. Freund](https://cepr.org/about/people/lukas-b-freund)  14 Dec 2019 In recent years, some have claimed that banks create money ‘ex nihilo’. This column explains that banks do not create money out of thin air. From an economic viewpoint, commercial banks create *private money* by transforming an illiquid asset (the borrower’s future ability to repay) into a liquid one (bank deposits); they would quickly be insolvent otherwise. In addition to bank solvency representing a constraint on private money creation, banks require access to liquid reserves in order to be able to engage in money creation. (*My emphasis*) --- # References [[Lukas B. Freund CEPR]]