In this way, if the bank refuses the loan to someone without a credit history, it doesn't run the risk of a future default but it (or some other bank in the system) has already incurred some losses from the past default of this borrower.
With every loan there is still a risk of default, even with previously trustworthy people with good credit histories.
As you can see, it involves a little more than just a promise of a random dude from the street. In short, empty promises don't work. You need something else, more solid
I'm not following. What is "solid"? When someone takes out a credit card, and gets a credit limit based on their previous behavior, what is solid? The bank receives no new assets. Their reserves do not grow. They get no collateral. They simply give credit based on how trustworthy they think the person is. What is "solid" about that?
The money in the bank "depository" is the reserves which are used to back up a loan
Yes, but the bank's reserves come from other people's deposits. A bank can't give this money out in loans
and keep it in their reserves. At some point, new money has to enter the system, and banks do this by creating credit out of nothing.