Also known by the term “Ponzi Scheme” by anyone other than a crook.

Fractional reserve banking is a lie to hide the true nature of banking. The term 'loan' is disingenuous as no loan actually ever transpires. It's far worse than the picture would suggest. Every time a purported loan/mortgage is issued then the money is created by our signature and future promise to pay. The thing of value is the promissory note that the banks launder into their unwarranted possession (first crime of banking) and then charge interest on the fraudulent debt - the second crime of banking is charging interest on a falsified debt. The faux debt is impossible to pay off and can only ned in the terminal escalation of our currencies. I get the whole 'money out of thin air' description but that's not true either as it's an obfuscation of the theft of principal in the form of the promissory note, that's the real crime - no signature - no promissory note - no purported loan. It's fraud and theft.

I like the diagram, but you need to add a Printer that adds 10x the initial deposit. I could be understating that, but it was where we were back in the kid 2000's, prolly 100x now.

This is all based on the assumption that there is only 1 bank.

What if the next month all 1,000,000 goes in transactions to another bank?

Does the flow from the digram start again with the initial value of 1,000,000?

I used to watch the Lone Ranger TV series from the fifties. Often they would feature a bank robbery from what I now call a Lone Ranger Bank. There was usually a room which the customers used and a back room with a safe. Everyone in town and round about would put their spare cash, savings and valuables in that safe.

When you had saved up enough money for a horse you would go to the bank, take out the money, go to the stables, swap your money for a horse and the stable owner would take the money right back to the bank.

Eventually the bank would realise that it always had so many thousands of dollars in it that were doing nothing. Then they hatched a plan, what if they gave that money to someone else to buy a horse. The money would still come straight back. That turned into a business plan.

Hire out the money, it doesn't matter that it isn't the bank's money. Hire it at so much a week and expect it to be returned at the end. Now you have a nice little earner and you needed no money of your own to get it going. It will fail if everyone tries to take their money out at the same time but not otherwise.

Eventually, they do not even need to move any cash. They just have paper accounts for everyone and change numbers on pieces of paper to make it work. When was the last time you went to a bank for a loan and they said sorry, we won't have new stock until Thursday? No, they just invent money out of thin air.

It does have advantages. That town can now do much more trade even though the money is pretend money.

Further, inflation can be good for banks as well. Imagine if when you put $1,000 into your account the bank did not keep the cash but bought $1,000-worth of gold. If inflation was 10% and you went back the following year to take your money out that gold would be worth $1,100. The bank would sell that gold for $1,100 and give you $1,000 - maybe with some interest. The difference would be pocketted by the bank.

I don't expect that they actually buy gold but they will have some way to invest it.