There is no fractional reserve system or money multiplier in the modern economy though, those concepts only really apply to commodity money, not fiat money. You even say banks create money by lending, which is not how a fractional reserve system works :) A bank with zero deposits can still lend money, although they might have a problem if people want to withdraw physical currency...
The Bank of England disagrees with you, when a bank loans money it adds a figure to the creditors account (a liability) and adds an equivalent loan to its books (an asset). There's no transfer of funds from somewhere to somewhere else, that's a "common sense" concept that doesn't apply to fiat money, the same as "fractional reserve banking".
> I borrow a million dollars, and give it to you for a house. You deposit it, and your bank loans 97% of it to someone else. They deposit that, and loan 97% of that out again... ad infinitum.
This is how it's taught in school. The more-accurate version is that "whenever a bank makes a loan, it simultaneously creates a matching deposit in the borrower’s bank account, thereby creating new money" .
Interest rates make borrowing cheaper. That spurs demand for loans which lets banks create deposits. To have the capacity to make those loans, the banks need sufficient reserve margin to meet the reserve requirement. This is usually a non-issue. They also need enough risk-adjusted capital. This is usually the issue. But if a bank needs more of this, and interest rates are low, it can buy the reserves through borrowing or equity issuance. Lower interest rates make both cheaper.
Fractional reserve banking doesn't apply to the modern economy though, because we no longer use commodity-backed money where the economy is based on shuffling round physical tokens. Money is created by banks lending money when they update your balance.
> This article explains how the majority of money in the modern economy is created by commercial banks making loans.
> Money creation in practice differs from some popular misconceptions — banks do not act simply as intermediaries, lending out deposits that savers place with them, and nor do they ‘multiply up’ central bank money to create new loans and deposits.
> In the modern economy, most money takes the form of bank deposits. But how those bank deposits are created is often misunderstood: the principal way is through commercial banks making loans. Whenever a bank makes a loan, it simultaneously creates a matching deposit in the borrower’s bank account, thereby creating new money.
Fiscal policy is what the government does. Governments sell bonds to raise money, this is what "government debt" is, a bunch of bonds each for a fixed period (usually between 1 and 30 years), pay interest each year and then repay the collateral when they expire.
Monetary policy is what central banks do, and includes quantitative easing (QE) which is often referred to as "money printing". Monetary policy also includes setting interest rates, managing the supply of physical currency and acting as a clearing house for bank operations.
The two are separate things but get conflated a lot in discussion - including on here - which makes the whole thing way more confusing than it could be. These Bank of England pamphlets on money in the modern economy are the clearest layman's overviews of the monetary policy side of things I've found:
Commercial banks create money when lending money.
Except fractional reserve banking is an incorrect model of how banks work, the poster you're replying to is correct, banks create money when they make loans. The Bank of England's guide to money creation makes this distinction clear on the first page, it's worth a read,