Banks are not intermediaries of loanable funds — facts, theory and evidence
Zoltán Jakab () and
Michael Kumhof ()
No 761, Bank of England working papers from Bank of England
In the loanable funds model that dominates the literature, banks are nonfinancial warehouses that receive physical commodity deposits from savers before lending the commodities to borrowers. In the financing model of this paper, banks are financial institutions whose loans create ledger-entry deposits that are essential in commodities exchange among nonbanks. This model predicts larger and faster changes in bank lending and greater real effects of financial shocks. Aggregate bank balance sheets exhibit very high volatility, as predicted by financing models. Alternative explanations of volatility in physical savings, net securities purchases or asset valuations have very little support in the data.
Keywords: Banks; financial intermediation; loanable funds; money creation; bank lending; bank financing; money demand (search for similar items in EconPapers)
JEL-codes: E41 E44 E51 G21 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ban, nep-mac and nep-pay
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Persistent link: https://EconPapers.repec.org/RePEc:boe:boeewp:0761
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