When the bank loans money to its customers, it merely writes the funds into their checking accounts. As the customers write checks to transfer the funds, some of the transfers go to other customers of the bank. So the bank simple gauges the extent to which the total checkable deposits of all its customers reaches a level 10 times its reserves. At that point, its balance sheet would show 90 percent loans and 10 percent reserves as assets against its checkable deposit liabilities.
