Banks lending what to whom is a question asked by many people being threatened by foreclosure.

In the traditional sense, when you ask a bank for a loan, you’re wanting to borrow money to make a purchase, like a home or a car.

But the process of lending isn’t the way most people expect. Nothing in this world is as it appears.

Creation of Money: When apply for a loan, the bank doesn’t take money from its vaults (as many might assume). In modern banking systems, most money is created “out of thin air.” It’s done by creating book entries, through a process called fractional reserve banking. Banks are only required to keep a small fraction of their depositors’ money on reserve. The rest can be lent out.

So when your loan’s approved loan, the bank essentially creates new money by crediting your account with the loan amount, which didn’t exist before you asked for it. This is known as credit creation.

When you sign a loan agreement, you’re agreeing to repay the amount you borrowed, plus interest. In that sense, you are taking on the responsibility for paying back the “money” that was created.

You’re not directly borrowing money that was saved by someone else. Instead, the loan’s backed by your future promise to repay it.

This is why it’s said that banks “lend” you credit, not money.

The Bank’s “lending” the credit it’s just created, backed by your promise to repay it.

When you repay the loan, the money you pay back “un-creates” the loan balance, and the bank’s books are balanced.

The bank earns interest on this created credit that it “loans” to you as a “borrower”.

Who’s Really Lending?

In this system, it’s not so much a matter of one party “lending money” to another. Instead, the bank is creating money (or credit) that never existed. The money you “borrow” doesn’t physically exist until the transaction occurs and is created when the loan is approved.

The Underlying Concept:

This concept is often referred to as “money as debt.”

Banks are creating money through loans. And the system relies on a continuous cycle of borrowing and repayment. The bank lends you credit, and you promise to repay it with interest. This system works as long as the economy is growing, and borrowers can continue to meet their repayment obligations.

Banks Lending What To Whom?

In the modern banking system, it’s not a straightforward case of someone (banks lending) with savings, to someone in need. Instead, the bank “lends” credit that it creates through the loan process.

The money you borrow doesn’t exist until you request it. Then the bank “creates” the “money” when your loan’s approved. Therefore, the bank’s not lending a pre-existing sum of money. So there’s no consideration by the bank at time of contract. [Strike One]

From day one, the bank wins, and you “the borrower” loses, because the bank’s creating new money (credit) in exchange for your future promise to repay it.

Just like the bank explains to you when you agree to the loan, right? Wrong. So there’s no full disclosure in the contract at the beginning. [Strike Two]

Would you have agreed to the terms of the contract, knowing that the bank was lying to you? And the bank claims they have to adjust the interest rate, on money they don’t borrow, but demand that you pay. [Strike Three].