Can we create growth and prosperity by routing tax revenue through the commercial banking sector?

This might be a controversial take, but here’s a thought experiment.

At a high level, economic expansion usually needs some level growth in the money supply (e.g. M1). Simplifying heavily, money growth can occur through:

1) Central bank money creation

2) Borrowing from abroad

3) Credit creation via commercial bank lending

Now imagine a federal country where most expenditures (infrastructure, social welfare, etc.) are administered at the federal level. Tax revenues are also collected federally, but instead of being held primarily at the central bank, they are deliberately deposited across a large, decentralised commercial banking system (for example, like Germany’s).

In this setup, commercial banks would be well-funded with tax revenue and would help facilitate fiscal spending alongside the federal government. Because commercial bank lending creates new deposits, this system could allow spending to be supported not only by existing tax revenue, but also by additional credit creation. In effect, this could generate more money than a system where the government relies purely on direct tax spending without intermediated borrowing.

I realise that bank failures, moral hazard, and political influence over credit allocation would be major concerns. In this federal system people vote with their feed and banks are not bailed out.

At this stage, this is more of a thought experiment than a policy proposal. Still, could such a system, if carefully designed, support higher growth and prosperity compared to a more centralised, tax-and-spend framework?