CLAIM: Comedian Jon Stewart said this week that the loan at the center of a civil real estate lawsuit against Donald Trump has left fewer loans available for other borrowers.
“Money is not infinite. A loan given to a liar will not be given to someone with a more honest valuation. So the system ends up incentivizing corruption,” Stewart said.
Verdict: False.
When a bank lends to other customers, it does not reduce the amount available for loans from the bank, except in the rare case of a capital-constrained bank in distress. Loans made to one customer are not deducted from the fixed pool of loans available to other customers of the bank.
Stewart’s comments reflect the misconception that banks are a kind of vault for money, and that when you withdraw some money to lend out, there is less money available for other loans.
In fact, bank loans generate deposits. These loans must be backed by capital according to regulatory requirements, but a well-capitalized bank will never run out of capital to make new loans. Deposits must be backed by reserves and can be borrowed from other banks if they fall short.
Banks lending to Donald Trump won’t reduce their lending to other customers. Money is not infinite, but a bank loan does not reduce the amount available for other bank loans.
