When a customer deposits money in a bank, the bank must keep a portion of it (the reserve requirement), but the rest is free to lend to other customers. Customers can spend the money, and it will eventually be deposited in another bank.

Because of the reserve requirement, a portion of the new deposit will be reserved by the new bank, while the remainder will be loaned. This process will continue until the entire initial deposit is deposited in banks. The initial deposit has been multiplied and used several times as a result of this process.

Bank lending refers to the process where financial institutions provide funds to individuals, businesses, or governments with the expectation of repayment with interest. Loans can be short-term or long-term, secured (backed by collateral) or unsecured (based on creditworthiness). Common types of bank lending include:

Personal Loans: For individual needs like education, medical expenses, or debt consolidation.

Mortgages: Long-term loans for purchasing real estate.

Business Loans: Funding for working capital, expansion, or equipment.

Auto Loans: Financing for vehicle purchases.

Credit Lines: Flexible borrowing limits, such as overdrafts or revolving credit.

Banks assess borrowers' credit history, income, and collateral before approving loans. Lending stimulates economic growth by enabling spending and investment, but carries risks like defaults, which banks mitigate through strict underwriting.