Claim: Comedian Jon Stewart said this week that the loans at the center of the civil real-estate case against Donald Trump meant there were fewer loans available to other borrowers.
“Money isn’t infinite. A loan that goes to the liar doesn’t go to someone who’s giving a more honest evaluation. So the system becomes incentivized for corruption,” Stewart said.
Verdict: False.
The amount of money available for loans from banks is not diminished when banks make loans to other customers, except in the rare case of a distressed bank that is capital-constrained. A loan to one customer does not subtract from a fixed pool of loans available to the other customers of the bank.
Stewart’s comments reflect a misconception of a bank as a kind of money vault where taking some money out to lend leaves less money out for other loans.
In fact, bank loans create deposits. Those loans must be backed by capital in accordance with regulatory requirements but well-capitalized banks never run short of capital to make new loans. The deposits must be backed by reserves, which can be borrowed from other banks if they run short.
When a bank makes a loan to Donald Trump, this does not leave less for loans to other customers. Money is not infinite but bank loans do not diminish the amounts available for other bank loans.
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