Why do banks take deposits if they do not need them to make loans? I have taken some economics courses in university, where I was introduced to fractional-reserve banking. From my understanding, in fractional-reserve banking, the bank has motivation to encourage deposits from depositors, because a large part of these deposits can then be lent out as loans. A small part of the deposits have to be retained as &quot;reserves&quot; (hence the term &quot;fractional-reserve banking&quot;). The bank profits by earning more interest on the loans than it has to pay to the depositors.
However, I read several articles that contradict my understanding. In an article from the Quarterly Bulletin of the Bank of England - Money creation in the modern economy:

The reality of how money is created today differs from the description found in some economics textbooks ... Rather than banks receiving deposits when households save and then lending them out, bank lending creates deposits.
[...]
In reality, neither are reserves a binding constraint on lending, nor does the central bank fix the amount of reserves that are available.
[...]
While the money multiplier theory can be a useful way of introducing money and banking in economic textbooks, it is not an accurate description of how money is created in reality.

In light of this, I am forced to re-evaluate my understanding of fractional-reserve banking. The most pressing question I now have is: if banks do not need deposits to create loans, why do they take deposits? What motivates retail banks to allow retail customers to deposit their money if banks have no need for deposits to make loans?
I think there are a few separate issues here.
First, semantics: if an institute doesn't let you deposit money into your account, I think we'd be hard-pressed to call it a &quot;bank&quot;.
This really doesn't matter to the fundamental aspect of your question, but I think it's of some use. Because a &quot;bank&quot; has to allow deposits (at least by a naive definition, if not a legal one), you're artificially limiting yourself to institutes that do so.
If we broaden the scope of the question to include more than just &quot;banks&quot;, we start to get to the meat of the problem.
Second, the real question: why would an institute let you deposit money into their possession to begin with?
I'm sure a hundred super-smart, very educated experts on the subject will give you a hundred and five different answers that are all the absolute, only truth in all the universe.
But the gist of it is that people are willing to pay the bank to safeguard their money. Money in the bank is insured against theft and heavily guarded, so many people would rather have large sums of money in the bank than in their house.
In return, they might pay for the service directly or through microtransactions related to the account. Many banks charge fees for various things, such as cashier's checks, notary services, or financial advice, services you might not bother with if you aren't already in possession of a checking account.
Further, banks can take the money in your checking account and invest it elsewhere (an obvious form of investment being loans to other people). A single, smart person investing a thousand people's money can make enough profit to be worth their while without being directly paid a cent. Scale that up and you get large banking corporations.
Banks often make money off credit card transactions, even if you make payments before any direct interest is due. They also make money off overdraft fees (a form of lending with very high &quot;interest&quot; rates), interest on the credit card (more lending), and so forth.
And, of course, they hope that if you need to borrow money, you'll do it through them.
Third, the side question: do institutes need deposits to make money off loans?
No, they absolutely do not.
Payday loan establishments don't take deposits, instead relying on high-interest, low payback period lending to make their money.
Pawning an item is a form of payday loan with physical collateral: you leave the collateral with the pawn shop and get paid for it, then if you return on time you get most of your money back, with the difference being the shop's fee for the loan. Pawn shops make a lot of money through simply buying low and selling high, but they still make money off pawned items and don't take deposits.
That said, you can only lend money if you have it, so having a large amount of cash sitting in your vault from deposits allows you to lend more money than if you only lend from your own finances. There's more risk involved, but when you start getting thousands and millions of account holders, the aggregate risk goes way down and you can start treating random statistical values like static rates.
Because bank deposits allow the bank to loan more money, it raises the interest they earn on the loans, so it's a good incentive to allow people to deposit into bank accounts.
Fourth, the question not asked: what does the quoted article mean?
I'm not an expert here, but from my reading it's basically just a way of twisting around the semantics to describe how things can be treated in an opposite fashion to common convention, but doesn't actually prove the convention wrong.
The article claims that lending money &quot;creates&quot; that money. This is true to a degree, but is meaningless in the big picture. When a modern bank gives you a loan, they don't actually hand you any physical thing that's worth money. They just write a number on a (probably digital) ledger that says you &quot;have money&quot;.
But they can only get away with that because they own assets that are worth real-world value equivalent to the amount they've &quot;created&quot;, and because, in the long run, you will give them the amount of money they've lent you, balancing the sheet yourself.
A bank can only get away with &quot;creating&quot; money for a borrower if they can afford to transfer that money to whomever the borrower is trying to buy something from. It does no good to have fictional money if you can't actually spend it, and you can't spend it if the bank doesn't have a commodity the seller's bank wants.
In practice, the commodity transferred is often virtual money established by digital ledgers, but that commodity is very real, and very controlled, and therefore has actual, real-world value. As such, when a bank &quot;creates&quot; money out of thin air, it's doing so by spending a real-world commodity it only regains if you pay back your loan (or they sell your collateral after taking it back).
There's a particularly egregious bit of word-twisting the article makes. It claims:

Bank deposits are simply a record of how much the bank itself owes its customers. So they are a liability of the bank, not an asset that could be lent out. A related misconception is that banks can lend out their reserves. Reserves can only be lent between banks, since consumers do
not have access to reserves accounts at the Bank of England.

It's true that reserves themselves can't be lent. That's the definition of the required reserve. But it's also irrelevant. Only 10-12½ % of deposits are required reserves (Bank of England, relevant to the article; other banking systems will have other reserve ratios). The other 87½-90 % of deposits are free to be lent out as desired to make money for the bank. Deposits are absolutely an asset for the bank to lend out in the normal sense of the word. They're also liabilities in a strict sense, but they're liabilities that earn the bank a lot of money.
Imagine you loan me £1000 of tools. I owe you either the tools, in good shape, or £1000, or some equivalent combination. Additionally, I'm probably paying you a fee, say £100 a month, to borrow them. Financially, that's a &quot;liability&quot;.
But I'm able to use those tools to earn £5000 a month doing something like construction or automotive repair. In normal speak, the tools are an enormous asset, not a liability. I just need to make sure I can return the tools and borrow other tools if you want yours back.
So while the text is &quot;true&quot;, it's also completely misguided in rebuking common &quot;misconceptions&quot;. In short, it's using smoke and mirrors to make you think you're wrong about something even though you really aren't.
Summary
Institutes don't require deposits to make money off lending, nor do they require lending to make money off deposits, but the two functions synergize very nicely with each other to create what we would typically think of as a bank.
The article you're quoting is mostly just using some hand-waving semantics to explain how modern banking uses a different mindset to approach the same thing we've been doing for millennia, with virtual currencies replacing physical bases for value.
But there's no epiphany behind the hand-waving; the fundamental nature of what's going on behind the layers of bureaucracy and pedantry hasn't changed since a caveman borrowed one sheep from his neighbor and gave back two sheep the next year.
Note
Most everything I've said is actually written in the quoted article. It talks about how a home loan that &quot;creates&quot; money is then balanced out by the bank paying the home seller's bank. It talks about gaining deposits so the bank can afford to lend more money. It talks about needing to pay interest to the central bank to maintain the assets upon which the commercial bank's finances are based.
The article isn't really bad or inaccurate. It just makes a few over-reaching, semantic claims that don't hold up under scrutiny in an attempt to make you think about banking a bit differently. And those are the claims that threw you off.
It also throws in the concept of growing the aggregate amount of money in the country (the &quot;broad money&quot;), a process typically called &quot;inflation&quot;, to maintain a stable, thriving economy. So in that sense, banks do &quot;create&quot; money (though ultimately the central bank does the creation by effectively forgiving tiny amounts of debt here and there through carefully-controlled interest rates as well as simply handing out newly-printed notes), but that's really an entirely different topic that's muddying the issue.