Final answer:
The statement is false; ADIs have several accounting and regulatory limits on the amount they can lend, including capital adequacy ratios, liquidity requirements, and reserve requirements to ensure financial system stability and prevent excessive lending.
Step-by-step explanation:
The statement that when an ADI (Authorized Deposit-taking Institution) makes a loan to a customer, there is no accounting limit to it is false. In reality, there are several constraints on the amount that banks can lend out, even though they do not necessarily lend out physical cash but rather create loans through accounting entries. Regulatory requirements, such as capital adequacy ratios and liquidity requirements, ensure that banks maintain a certain level of reserves and capital relative to their lending. Additionally, the risk management policies of the bank itself can impose limits on lending, as banks must consider the creditworthiness of borrowers and their ability to repay loans. It is important to note that banks can only lend out a portion of their deposits due to reserve requirements which dictates the minimum percentage of deposits that must be kept on hand. These regulations help to promote stability within the financial system and prevent excessive lending that could lead to financial crises.