Privately owned commercial banks are never allowed to create paper money, that is the sole right of the Bank of Canada. Theoretically the amount of digital money that privately owned commercial banks are permitted to create depends on the bank's assets relative to its liabilities. Also, higher capital adequacy ratios provide more resiliency and are critical in ensuring that banks have enough cushion to absorb a reasonable amount of losses before they become insolvent and consequently lose depositors' funds.
Capital Adequacy Ratios of Commercial Banks; follow this link to the Office of the Superintendent of Financial Institutions: http://www.osfi-bsif.gc.ca/Eng/fi-if/rg-ro/gdn-ort/gl-ld/Pages/CAR18_index.aspx
However it is likely that banks extend credit and then go looking for the required CARs given research into past activities of banks when there were reserve requirements.
Prior to July of 1994 there were reserve requirements meaning that commercial banks were required to hold a certain percentage of reserves relative to the amount of liability deposits which is consistent with the money multiplier model in macroeconomic textbooks.
However, empirical research initiated by Basil Moore (1979, 1983, 1988a, 1997, 2001) and later independently corroborated by numerous researchers, including Kydland and Prescott (1990), confirmed a simple operational observation about how banks actually operate, made in the very early days of the monetarist controversy, by the then senior vice-president of the New York Federal Reserve, Alan Holmes. The ‘Money Multiplier’ model assumes that banks need excess reserves before they can make loans. The model process is that first deposits are made, creating excess reserves, and then these excess reserves allow loans to be made, which create more deposits. Each new loan reduces the level of excess reserves, and the process stops when this excess has fallen to zero.
But in reality, Holmes pointed out, banks create loans first, which simultaneously creates
deposits. If the level of loans and deposits then means that banks have insufficient reserves, then
they get them afterwards – and they have a two-week period in which to do so.
In contrast to the Money Multiplier fantasy of bank managers who are unable to lend until they receive more deposits, the real-world practicality of banking was that the time delay between deposits and reserves meant that the direction of causation flowed, not from reserves to loans, but from loans to reserves.
Source: Revised And Expanded Edition Debunking Economics The Naked Emperor Dethroned/Steve Keen/2011/Zen Books Ltd./page #308