If banks may lend money they don't have (fractional lending), How can they lose?

C

crgarcia

If you have $100
and you lend $300
$200 of those were bad loans and you don't get anything paid back,

Isn't it a free ride?
How banks lose?
Am I missing something.
Where's the catch?
 
Quote from crgarcia:

If you have $100
and you lend $300
$200 of those were bad loans and you don't get anything paid back,

Isn't it a free ride?
How banks lose?
Am I missing something.
Where's the catch?
More...


The catch is here:
if you have $100 and reserve requirement is 10% then you can lend $90

then, if the $90 that was lent is deposited back in your bank, you can lend $81 more (etc. but two levels is enough for this example).

that's how $100 initial deposit turned into $90+$81=$171
but the total amount of deposits is $100+$90=$190. If bank loses those $171, how is it going to repay the $190 when demanded?
 
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