two qualifications to deposit creation

two qualifications to the ideal condition must be made. we have shown that $1000 of new reserves put into a bank can ultimately result in an increase of $ 5000 of bank deposits. this assumed that all the new money remained somewhere in the banking system , in one bank or another at every stage , and that all banks could keep " loaned up" with no " excess reserves. " .
-leakage into hand-to-hand circulation , it is quite possible , however , and even likely , that , somewhere a long the chain of deposit expansion , some individual who receives a check will not leave the proceeds in a bank but will withdraw it into circulation or into hoarding outside the banking system . as a matter of fact , in boom times when bank deposits are expanding , there is usually at the same time an increased need for pennies , dimes , and paper currency . the effects of such withdrawals on our analysis are simple . when $ 1000 stayed in the banking system , $ 5000 of new deposits were created . If $ 100 were to leak into circulation outside the banks and only $900 of new reserves were to remain in the banking system , then the new demand deposits created would be $4500. the banking system can always amplify in a 5-to-1 ratio whatever amount of new reserves is permanently left with it.