I don't believe that a bank should be able to lend money it does not have. If this was law, then a bank would be unable to make loans until payments flowed back in enough to loan back out again. If one bank had no loan money available the customer would go to another bank that had money to loan. Or, if a bank wanted to write a loan, but had no money, it would have to pay to borrow from a bank that did have money and pay interest to that bank. Both the value and cost of money would be seen in the interest rates.