No, interest is a typical zero-sum transaction where the borrower spends and the lender earns. The loan itself represents a temporary net increase in the money supply, appearing from nothing and then vanishing when it is paid back.
I'm a bit unsure what happens when a borrower defaults on their loan. The money that was borrowed remains out in circulation, but what happens to the debt (anti-money)?
Does the bank itself use its own money to pay off the debt (deleting some of their own money), or do they simply delete the debt?
In principle, it is 'the bank uses its own money to pay off the debt', as long as you accept that the bank's own 'credit worthiness reputation' and other assets count as 'money'. The hit is _ultimately_ taken by the capital shareholders in the bank, which is the important part.
