It's the central bank who creates the money; it can refuse to lend ("create money") to commercial banks in distress:
Fed's Discount Window: Closed for Banks on Brink (12 April 2011)
(http://www.wsj.com/articles/SB10001424052748703518704576258993132298396 google the title for full view)
The U.S. Federal Reserve may be the lender of last resort, but not, it turns out, for banks on the brink of insolvency.Data recently provided by the Federal Reserve and analyzed by Dow Jones show that of 201 banks that failed between February 2008 and March 2010, only 11 had loans outstanding from the central bank's discount window when they failed.
The discount window makes secured short-term loans, usually overnight, to help banks when market funding is expensive or hard to obtain. One of the Fed's historic roles is to help banks that are healthy but are temporarily out of cash; it is one of the core tasks of any central bank.
The revelation that the Fed sometimes will reject a bank's discount-window request therefore came as a surprise to some observers. Several lawyers and bankers familiar with how and why banks fail said they simply assumed the Fed required more collateral from weak banks—not that it wouldn't lend to them at all.
Reserves at the central bank really seem necessary only for inter-bank payments, otherwise reserves are useless. Now with QE there are excess reserves deposited at the central bank.
In a recent interview Keen said that banks cannot lend these reserves out. Curiously he also seems to fall into the logic about a necessity for 100% reserves in this case, arguing that if the bank would lend out someone else's deposit to you, and then that someone else wants to withdraw his money, Keen ask how can the bank give that money to them, since it is lend out.
His point seems though that the excess reserves of the banks stored at the central bank even just physically cannot be lend out. Well they could disappear probably if banks asked for actual paper cash. Commercial bank indeed cannot themselves destroy these excess reserves (Keen laments excess reserves, since banks lose money on them under the negative interest rate now). The way the excess reserves can be destroyed is only by the central bank itself. So if the commercial banks cannot destroy the central bank money, how can it be said that they have created it?
I agree or phrased otherwise how it works in practice regardless of regulatory or theoretical ideas.
It's also almost a philosophical issue to determine if it's the central bank or the private bank who "created" the money in the above scenario.