>If a bank just writes £5 in your bank account, they've created that £5. There is no corresponding £5 that has been removed from somewhere else, unlike when you or I extend a loan.
If they loan me £5, but I leave the £5 in my account, then it counts as loan, but it also counts as a deposit. So their loans can never exceed their deposits.
I still don't think you get it. Nobody is saying their books don't balance. We're saying the money they lend to you is conjured out of thin air.
I wouldn't be able to give you £5 that I don't have just because I also write myself a note saying you owe me £5. For me to lend it to you, it would have to come from somewhere. With banks that's not the case.
The proposal is to prevent money in current accounts from being lent. If you had £5 in your current account, this money would be effectively yours. However, if you had £5 in your savings account, you would be effectively lending the money to the bank who would in turn extend a loan to another client.
If they loan me £5, but I leave the £5 in my account, then it counts as loan, but it also counts as a deposit. So their loans can never exceed their deposits.