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From something called Anatomy of the Bubble, it would seem:
"...Now, what proportion of its total deposits do you suppose
a bank lends? How much would you think it was
safe to lend? The half? Three quarters? All? The fact is
—and even those who know it well and take it for granted
are astonished in those moments when they stop to reflect
on it—the fabulous fact is that a bank may lend ten times
its deposits. That is to say, for each actual dollar of other
people's money it has received and locked up in its safe,
it may lend or sell ten dollars of credit money.
Not every bank does lend ten to one—ten dollars of
credit to one of cash in the vault; but if you take the
banking system entire it has the potential power to erect
credit in that ratio to cash. Ten to one was the formula
adopted by the United States Treasury and other Federal
Government agencies in their campaign against hoarding.
In official messages broadcast over the country people
were exhorted to stop hoarding and bring their money
back to the banks on the ground that each dollar of actual
money in hiding represented a loss of ten in the credit
resources of the country, and that each dollar of money
brought back to the banks represented an increase of ten
dollars in credit for the common benefit of trade, commerce
and industry.
The beginning of all modern credit phenomena is in
this act of multiplication, performed by the banker. How
can a bank lend credit to the amount of ten times its cash
deposits ?
Perhaps the easiest way to explain it will be to tell
the story of the old goldsmiths who received gold for safe
keeping and issued receipts for it. These receipts, representing
the gold, began to pass from hand to hand as
money. Seeing this, and that people seldom touched the
gold itself or wanted it back, so long as they thought it
was safe, the goldsmiths began to issue paper redeemable
in gold, without having the gold in hand to redeem it
with."
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