Perhaps the statement 'banks cannot create loans out of thin air'?
A bank can, with some capital buffer, borrow money from the fed, loan it out to someone else, and earn an interest spread.
Deposits help here because you pay a depositor less money than you pay the Fed, but they aren't crucial. And the Fed does have the advantage of not demanding it's money back at random.
Though perhaps I am wrong about how easy it is to carry a negative balance with a central bank? I imagine it is fine as long as the balance sheet looks good.
A bank can, with some capital buffer, borrow money from the fed, loan it out to someone else, and earn an interest spread.
Deposits help here because you pay a depositor less money than you pay the Fed, but they aren't crucial. And the Fed does have the advantage of not demanding it's money back at random.
Though perhaps I am wrong about how easy it is to carry a negative balance with a central bank? I imagine it is fine as long as the balance sheet looks good.