How Do Banks Go Under?

[Digging4Truth]

I don't understand fully how banks go under. Especially understanding how they work.

If a bank has $1,000,000 to loan and you borrow $100,000 then common sense would dictate that the bank now has $900,000 to loan. Well... this is not the case due to fractional reserve banking and due to the way the bank views your loan.

The first thing to understand is that when you sign a loan you do not reduce the amount of money they have to loan. You increase it. You signature is viewed as more money they have on their books because you have just agreed to speak for $100,000.

So... since they only have to have a fraction of the money on hand (let's say 10%)... you have just signed for $100,000 so they can now loan out an additional $90,000 because of your loan. You did not borrow money as much as you created money and they charged you for doing it.

When they loan out the $90,000 to someone else... excuse me... when the next person creates $90,000 made possible from your loan then can now loan out an additional $81,000 and that cycle goes on until every loan creates an ability to loan 9 times the amount of the loan... So... they had $1,000,000 to loan. They loaned you $100,000. When the full potential of your loan is realized they will have then had a potential $1,900,000 to loan because you "borrowed" $100,000 at a time that they had $1,000,000 available.

So... that basic concept understood.

How does a bank go under?

The only thing I can figure is that the downside of the way they figure banking is that when loans go default the impact is exponential. Not sure though.