You can do that, sure. And if that was all there was to banking, it would be a fantastic business to be in.
Alas, the whole point of taking out a loan is to spend the money on something, eg to invest it.
And once the bank's customer withdraws the deposit half of that newly created pair of anti-particles, the situation isn't nearly as symmetrical and neat anymore: the bank better have some money in the vault to be able to satisfy that withdrawal request.
(Slightly less antiquated: the customer will likely spend their borrowed money electronically, but then just means that you need to have the funds available to settle with the bank who runs the account on the receiving end of that transaction.)
> Generally there is legislation that then brings these 'deposit holders' under specific requirements.
Even without legislation or specific requirements, you can't just keep creating these loan/deposit pairs out of thin air. At least not, if your customers are supposed to be able to spend their borrowed funds.
"And once the bank's customer withdraws the deposit"
Withdrawing is always just transferring to another bank - even if that bank is the central bank.
Banks settle with each other by the target bank taking over the deposit in the source bank. That is how correspondent banking has worked for at least four hundred years.
Everything else is a collateral optimisation.
There is never any "money" in a vault. There might be some receipts for money, but that's about it.
> Withdrawing is always just transferring to another bank - even if that bank is the central bank.
No. You can withdraw cash. But you are right, that the common case is a transfer.
> Banks settle with each other by the target bank taking over the deposit in the source bank.
That's one way they can settle. But at the end of the day (or whatever the relevant period is), they send each other the net difference in the underlying base money. These days, that's deposits at the central bank.
> That is how correspondent banking has worked for at least four hundred years.
Correspondent banking being important is mostly an American thing (and perhaps a 18th and 19th century English, but not Scottish, thing, too.)
> There is never any "money" in a vault. There might be some receipts for money, but that's about it.
These days, the 'vault' is (mostly) an account at the central bank.
> Job done.
You can do that, sure. And if that was all there was to banking, it would be a fantastic business to be in.
Alas, the whole point of taking out a loan is to spend the money on something, eg to invest it.
And once the bank's customer withdraws the deposit half of that newly created pair of anti-particles, the situation isn't nearly as symmetrical and neat anymore: the bank better have some money in the vault to be able to satisfy that withdrawal request.
(Slightly less antiquated: the customer will likely spend their borrowed money electronically, but then just means that you need to have the funds available to settle with the bank who runs the account on the receiving end of that transaction.)
> Generally there is legislation that then brings these 'deposit holders' under specific requirements.
Even without legislation or specific requirements, you can't just keep creating these loan/deposit pairs out of thin air. At least not, if your customers are supposed to be able to spend their borrowed funds.