Wendover’s Banking Explainer Counts the Same Money Twice
Wendover Productions gets one important fact right: commercial banks create money through lending. But its most dramatic demonstration of that process contains a fundamental accounting error. The video claims to turn 100,000 credits into 110,000 through fractional-reserve banking, yet its final calculation adds bank assets to customers' existing money claims.
For a video whose central argument is that money is an accounting system, that is a serious failure. The explanation also relies on an outdated understanding of reserve requirements and gives viewers an inaccurate picture of how modern banks actually create money.
The $110,000 demonstration does not add up
The video's central example starts with ten individuals holding 10,000 credits each. Each deposits 1,000, giving the bank 10,000. The bank lends 7,500 to a watermelon farmer, retains 2,500, and later receives 9,000 in repayment.
The video concludes that the ten individuals have 98,500 credits and the bank has 11,500, producing:
98,500 + 11,500 = 110,000 credits.
The problem is that the 98,500 already includes the individuals' bank deposit claims. The bank's 11,500 is its own cash asset, including the cash backing those deposits. Adding the two counts the same underlying money twice.
The Federal Reserve's definition of M1 makes this distinction clear: it includes currency held outside bank vaults and qualifying bank deposits. Bank vault cash is excluded. The monetary base is a separate measure with its own accounting boundaries. These figures cannot simply be added together to produce a meaningful money supply.
October 27, 2026+1
There is another arithmetic problem. The video says the ten individuals each end up with 9,100 credits, which totals 91,000, not 98,500. The latter figure requires accounting for the additional 7,500 received by the individual who sold the irrigation system.
The underlying idea of money creation through lending is legitimate. The claimed 110,000 total, however, has not been demonstrated.
Modern banks do not operate on the simple reserve multiplier presented here
The video describes a bank taking 10,000 in deposits, retaining 2,500, and lending the remaining 7,500. It then presents this 25% reserve ratio as a typical mechanism through which banks create money.
That is an outdated description of modern banking.
The Bank of England published a detailed explanation of money creation in March 2014. It specifically rejects the popular textbook explanation that banks simply lend out deposited money or multiply a fixed quantity of central-bank reserves.
In modern banking, when a commercial bank approves a loan, it normally creates a corresponding deposit in the borrower's account. The bank simultaneously records a loan asset and a deposit liability.
The Bank of England explains that reserves are not a binding constraint on aggregate lending in this process. Banks obtain the reserves needed for settlement and other purposes, while lending decisions depend on profitability, risk, regulation, interest rates and borrower demand.
Bank of England
This distinction matters.
The video's example uses physical credits leaving a bank's reserves. Modern banking generally creates deposit balances through accounting entries. These are related processes, but they are not interchangeable explanations.
The video moves between them without adequately explaining the difference.
It then declares:
"money is created when it moves"
That is an imprecise description. In modern commercial banking, money is created when the bank books the loan and credits the borrower's account. The subsequent payment transfers that newly created deposit between account holders.
The distinction is fundamental to understanding the system.
The 25% reserve requirement is not a modern universal rule
The narrator says:
"25% reserve ratio is very typical"
This gives the impression that central banks generally control money creation by prescribing how much of every bank's deposits must remain in reserve.
The current regulatory position is considerably different.
- United States: The Federal Reserve reduced reserve requirement ratios to zero percent, effective March 26, 2020. This eliminated statutory reserve requirements for all depository institutions.
Reserve Requirements
- United Kingdom: The Bank of England's monetary analysis explains that UK banks have no reserve requirements. Its monetary policy framework operates primarily through interest rates rather than a fixed reserve ratio.
Bank of England
- Japan: The Bank of Japan still operates a reserve requirement system, but its ratios have not changed since October 1991. The institution explicitly states that reserve requirements are no longer used as a monetary easing or tightening instrument.
日本銀行ホームページ
Even the historical example needs correction.
Under America's National Banking Act of 1864, central reserve city banks and other reserve city banks had 25% reserve requirements. Country banks, however, had a 15% requirement, not 25%.
Federal Reserve History
The video presents a simplified historical arrangement as though it were a general banking rule.
Reserve requirements still exist in some countries, but they are not the universal throttle on lending that the video describes. Capital requirements, liquidity management, credit risk, funding costs and monetary policy are far more important to understanding modern banking.
The creation of money is not the creation of wealth
The video describes its example as a system in which the depositor, bank and farmer all make money.
But money creation and wealth creation are different things.
When a bank creates a 7,500 loan, the borrower receives purchasing power but also acquires a 7,500 debt. The bank acquires a corresponding financial asset. The depositors retain their claims against the bank.
Nobody automatically becomes 7,500 richer simply because the bank creates that balance.
The Bank of England makes this distinction explicitly: banks create money, not wealth. When borrowers repay the principal of their loans, the corresponding deposit money is destroyed.
the UK's central bank
The farmer's irrigation system and increased watermelon production may create genuine economic value. That value comes from productive investment, not from the accounting entry that created the loan.
The video touches on repayment but never makes the distinction sufficiently clear. Its presentation of a financial expansion as a machine in which everyone makes money risks leaving viewers with the impression that additional money balances automatically represent additional wealth.
They do not.
The history of checks is more complicated than the video suggests
The historical account also compresses the development of American banking.
The video presents the National Currency Acts of the 1860s as the beginning of a new era in which the modern check became a means of moving money between banks.
But checks were already an established payment instrument before the Civil War.
A 1999 study published by the Federal Reserve Bank of Richmond, The Fed's Entry into Check Clearing Reconsidered, reports that checks were prominent in American banking by the middle of the nineteenth century. By 1855, the value of checkable deposits had already exceeded the value of banknotes in circulation.
Richmond Fed
The New York Clearing House Association was established in 1853, providing another example of financial institutions organizing check clearing before the National Currency Acts.
The 1860s legislation was important. It established a more uniform national banking framework and changed the conditions under which banks issued currency and maintained correspondent relationships.
But it did not introduce the check.
The distinction matters because the video uses this historical sequence to explain the transition from physical currency to increasingly abstract money. That transition was already well underway before the legislation it identifies as the turning point.
The verdict: A correct headline, an unreliable explanation
The central premise survives scrutiny: commercial banks create money through lending, and the modern financial system depends on institutions maintaining accurate records of financial obligations.
But the video weakens its own educational argument in three consequential ways.
It presents an invalid 110,000-credit calculation, treats an outdated reserve-ratio model as a general explanation of modern banking, and confuses the creation of money with the creation of wealth.
These are not minor technical disagreements. They affect the very mechanism the video is trying to explain.
The irony is difficult to miss. Wendover spends considerable time explaining that financial systems depend on precise accounting, yet its central demonstration fails to distinguish bank assets from customer money claims.
I would not accept the 110,000 figure as evidence of money creation. Nor would I teach the 25% reserve ratio as the mechanism governing modern banking.
Money creation is fascinating enough without making the arithmetic do things it cannot.
References
1. Money’s Mostly Digital, So Why Is Moving It So Hard? — Wendover Productions. Original video and primary source for the claims examined.
2. Money Creation in the Modern Economy — Bank of England, March 14, 2014. Explains how commercial-bank lending creates deposits and why reserve quantities do not directly determine modern bank lending.
3. Reserve Requirements — Federal Reserve Board. Documents the elimination of US reserve requirements effective March 26, 2020.
4. What Is the Reserve Requirement System? What Are Excess Reserves? — Bank of Japan. Establishes that Japanese reserve ratios have remained unchanged since October 1991 and are no longer used as an active monetary tightening or easing instrument.
5. National Banking Acts of 1863 and 1864 — Federal Reserve History, July 31, 2022. Documents the historical distinction between 25% reserve requirements for reserve-city banks and 15% for country banks.
6. Money Stock Measures — H.6 Release — Federal Reserve Board, October 27, 2026. Provides the official definitions distinguishing M1, monetary base, currency in circulation and bank reserves.
7. The Fed's Entry into Check Clearing Reconsidered — Federal Reserve Bank of Richmond, Spring 1999. Provides historical evidence that checks were already prominent in American commerce before the Civil War, including the 1855 comparison between checkable deposits and banknotes.
8. How Is Money Created? — Bank of England, updated October 1, 2019. Explicitly distinguishes money creation from wealth creation and explains the role of capital and liquidity constraints.