The banks increase the money supply when they loan deposits. An organisation with a banking license 'should' refrain from lending out deposits given that, by doing so they will cause inflation.
The problem with the banks is that they are doing fractional reserve banking. This means that they can increase the money supply, it would be better if they held all deposits in reserve so that the taxpayer is not required to protect their customers. Given that we are not able to hold them to account by withdrawing our funds because of deposit insurance, they should refrain from lending out deposits, otherwise they are increasing the money supply.
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