I think that's the most prudently argued response I've got on HN.

It sounds like we are mostly in agreement, but we disagree on:

1. When something should or shouldn't be called "money"

2. Will the bank - in practice - lose its money-printing ability if it behaves extremely bad

Regarding point 1, I guess we're going to just agree to disagree.

Regarding point 2, it's up to you to provide a single counter-example and prove me wrong. Theoretical arguments won't cut it here.

I'll answer some individual points below:

> I agree that money is a very ambiguous (and probably not very helpful) term, but insofar as we can consider the M1 money supply measure to be the quantity of money available in the economy at any given point in time (which is what the BoE paper is referring to when it says "money creation"), originating loans definitely creates money[0]. When you get a loan, the money lands in your demand deposit account, it's definitely "money" according to the definition of money being used in the BoE paper.

The BoE paper wasn't describing the case where a troubled bank with 0 capital makes up infinite amount of demand deposits. If such a case were to happen in practice, automated systems might initially report the amount of circulating money as infinite, but very soon someone would "correct the error".

> When a bank receives its license, it can immediately start both taking deposits and issuing loans.

This might be as it is written in Australian law, but in practice no bank is going to receive a license if it has 0 capital when starting up. Sure, it doesn't need deposits to start lending, but it still needs reserves.

> Banks lend money to each other all the time, and most loans from the central bank are against collateral such as government securities and other very liquid forms of capital[3] however the central bank will, under some circumstances, lend money to banks against the assets they have themselves created through loan origination[4]. So while my little thought experiment about "starting from $0" is not quite accurate, it's not that far off!

Well, I'd say it's far off. We're comparing "normal bank issuing loans more or less prudently" to "bank with 0 capital issuing infinite money to the chairman's wife". I would argue that your typical central bank is willing to bail out most cases in the former category, while refusing to bail out any case in the latter category.

> It may be the case that a bank that had no reserves at all would go bust because it wouldn't be able to compete with other banks, but it's certainly not the case that they all need to attract reserve deposits equal to the amount of loans they want to originate.

I'm obviously not claiming that banks need reserve deposits equal to the amount of loans they originate. I'm saying that banks need some deposits to issue loans, and I'm saying that any one individual loan is never going to be larger than the amount of reserves held by the bank. The sum of all loans might be larger than the amount of reserves held, but no single individual loan is going to be.

> They only need sufficient reserves to satisfy net flows of funds and, because they're banks, they have access to the types of credit facilities they need in order to satisfy short term liquidity shortfalls.

If a bank issues a huge loan that the customer intends to withdraw from the bank, that can cause a short term liquidity shortfall. So if you're saying the bank needs sufficient reserves to cover for potential short term liquidity shortfalls, then I suppose we are in agreement over the main question in this debate.

> loans are made independent of the banks’ reserve positions [...] Loans create deposits which are then backed by reserves after the fact. The process of extending loans (credit) which creates new bank liabilities is unrelated to the reserve position of the bank."

I'd be to happy to accept a single counter-example where a bank with 0 reserves issues >999999999 dollars to a family friend who then exchanges it to goods and services. Just a single example of this, and I will say I was wrong. Without a single documented case of this happening, you are essentially claiming "this could happen in theory". That's different from "this is how the world actually is today". Many things could theoretically happen in the world, but they don't, and that's not how to world is. In practice banks are constrained in their loan-making by their reserves, even if you have 9 research papers that claim otherwise "in theory".