It's actually worse than that. The word "Reserve" in the Federal Reserve Bank has to do with the rules their member banks have to adhere to. What it means is that your deposit is the RESERVE they must keep on hand to handle demand withdrawals. Under the RESERVE system, the bank is allowed to lend out a percentage of the money they have on hand for demand deposits. . . but it's not what you might think.
Let's say you deposit $1000. Once the bank has your $1000 on hand, they are THEN allowed, because of that $1000 in cash, the RESERVE, to lend it out Eight TIMES to borrowers in the form of electronic money. So your $1000 becomes $8,000 in loans. . . which get deposited in other banks, and then gets to be THEIR reserves, and then loaned again. . .
There is a limit, because at some point cash DOES start getting withdrawn from the banks' reserve pools. I've seen figures of about 17.5 times as the multiplier for each dollar of actual cash deposited being turned into fictitious money being turned into money earning loans by your bank and other down stream banks before they have to stop creating money to be safe before the house of cards is at risk.
Why do you think they get so pissed off if you bounce a check and charge you so much when one is not honored? It's not about the embarrassment of having to undo the paperwork. It's the impact on their RESERVE and all that money they will lose!
Wrong. Every loan is fully funded. If the only deposit is $1000, they can only lend $1000 less the reserve requirement, not multiples of $1000.