I believe the academic theory they teach at schools regarding fractional reserve banking and money creation, is that it does create money.
The theory goes: Joe deposits $100 in a bank, the bank lends $90 out to John. Now John has $90 and Joe also has $100. So $90 has been 'created' out of thin air due to the way this works. It's simplified a bit, the actual amount of money created is not $90 because John can deposit that money, and the bank will lend $81 out of that, and so on.
The formula they teach is: amount of money created (money multiplier) = 1 / (reserve ratio)
Reserve ratio is just the proportion of the deposit that the bank has to keep, and not lend out. So if they had to keep 10% of deposits as reserves, the amount of money created from $100 deposited is $1000.
Source: 'principles of economics' - widely used textbook in oz for econ courses, and available at most libraries.
As for how relevant that is in the real world? I have no idea. It's all really abstract to me, to be honest.
