| Authors | Organization | Full Quote | Title | Journal or Publication | Year | Web or Notion link | Authority Type | Country |
|---|---|---|---|---|---|---|---|---|
Financial Times | Banks do not simply lend out money deposited by savers, the so-called loanable funds model that most economic textbooks propound. Instead they create deposits when they make loans, effectively expanding the money supply. They create most of the money in circulation, and are limited in how much they create mainly by their own assessment of the implications of new lending for their solvency and profitability. Central banks have limited control over how much money is pumped into the system in this way, and supply whatever reserves are required. The idea that commercial banks multiply money created by the central bank is plain wrong. | The reality gap in the role of banks | Financial Times | 2015 | https://www.ft.com/content/e336ea7e-0d33-11e5-a83a-00144feabdc0 | Financial Journalism | ||
Awrey, D. (2017) | University of Oxford | “While often far less appreciated, states also play an important role in licensing private money creation. States authorize the establishment of deposit-taking banks and prohibit all firms other than banks from issuing deposit liabilities” | Brother, can you spare a dollar? Designing an effective framework for foreign currency liquidity assistance | Columbia Business Law Review; Oxford Legal Studies | 2017 | Legal Expert | ||
Braun, B. (2016) | Max Planck Institute | “Banks do not need to hold reserves in order to make a loan. In fact, the reverse is true – banks make a loan and then borrow the necessary reserves, either in the interbank market or from the central bank.” | Speaking to the people? Money, trust, and central bank legitimacy in the age of quantitative easing | Review of International Political Economy (Peer Reviewed) | 2016 | https://www.tandfonline.com/doi/full/10.1080/09692290.2016.1252415 | Legal Expert | |
Desan, C. A. (2022) | Harvard Law School | “The logic mimics money creation by banks, which issue deposits to fund their longer-term commercial loans. … As modern governments delegated retail money creation to commercial banks, they also ordained the channels in which the medium would travel. But the impact of the banked infrastructure goes deeper. It grants commercial banks the capacity to lend at a lower rate than other creditors: the singular privilege they hold to create money out of their networked credit means that they are uniquely competitive in the marketplace for credit. … Note that the banks dominate all the more, the more they pass on their low cost of lending to borrowers — they become lenders without equal.” | Money’s Design Elements: Debt, Liquidity, and the Pledge of Value from Medieval Coin to Modern “Repo” | Banking and Finance Law Review (Peer Reviewed) | 2022 | Legal Expert | USA | |
Desan, C. A. (2022) | Harvard Law School | “A particular kind of hardwiring characterizes capitalism. That system amounts to the governing (constitutive) determination that the public medium of the economy – money – should be created by banks, predominantly banks operating for private profit. The determination is strange, indeed sui generis [unique], because governments can make money without any financial intermediary or involvement. Despite its anomalous nature, the banked design for creating the money supply has gone viral in the last three centuries. During that time, it has determined the way both private and public spending happens.” | How To Spend a Trillion Dollars: Our Monetary Hardwiring, Why It Matters, and What We Should Do About It | Harvard Public Law Working Paper No. 22-04 | 2022 | Legal Expert | USA | |
Hockett, R.C., and S.T. Omarova (2017) | Cornell University | “The bank simply credits a checkable borrower account (either newly opened or pre-existing), then books this transaction as an asset and a liability of its own, on the one hand, and an asset and a liability of the borrower, on the other hand” | The finance franchise | Cornell Legal Studies Research Paper, No. 16−29 | 2017 | Legal Expert | USA | |
Levitin, A. (2015) | Georgetown University Law Center | “Banks create money in the form of deposits through lending. Bank lending creates bank deposits. When a bank makes a consumer a loan, that loan is typically disbursed in the form of a deposit at the bank, rather than in cash. This transaction increases the bank’s assets (the loan) and liabilities (the deposit) and the consumer’s assets (the deposit) and liabilities (the loan). The process works in reverse with loan repayment. When a bank loan is repaid, a deposit is eliminated and thus, the supply of bank-created money contracts. The money supply thus expands (or contracts) with the extent of bank credit.” | Safe Banking | University of Chicago Law Review | 2015 | Legal Expert | USA | |
Menand, L. (2019) | Columbia Law School | “Banks do not simply lend; when they lend, they create money. Indeed, government-chartered banks create most of the money in the economy. … Banks create deposits by crediting accounts (using the ‘bookkeeper’s pen’) when they originate loans. In other words, banks lend to account holders by plussing up their balances.” ; “For example, when a borrower comes to a bank to finance a new venture, the bank is not constrained by the amount of cash that already exists. The bank can empower the borrower to requisition the necessary social resources by creating new money instruments out of thin air. | Why Supervise Banks? The Foundations of the American Monetary Settlement | Vanderbilt Law Review | 2019 | Legal Expert | USA | |
Orian Peer, N. (2022) | University of Colorado Law School | The term “deposit” is notoriously confusing. It evokes the image of a bank customer providing a bank with actual cash (Federal Reserve notes) in return for deposit. In reality only a small fraction of deposits is created in this way. More commonly, deposits are created in the process of commercial bank lending. When a bank provides a borrower with a loan, the bank credits the borrower’s account with a new deposit it creates on its books. No actual cash needs to be involved in that transaction. The deposit is simply a new bank liability that the bank creates to fund the new asset it acquired, that is, the loan (the borrower’s obligation for future payment). | Money Creation and Bank Clearing | Fordham Journal of Corporate and Financial Law | 2022 | Legal Expert | USA | |
Ricks, M. (2011) | Harvard Law School; US Treasury Department | “To say that banks create money is just another way of saying that deposits function as money.” ; “Banks’ role in money creation distinguishes them from most other types of financial intermediaries. In other words, not all financial firms are said to create money.” ; “By virtue of submitting to this regulatory regime, banks are endowed with an extraordinary legal privilege: they are licensed to issue deposit obligations. This privilege is accompanied by a logical corollary: enterprises other than banks are legally disallowed from issuing deposits.” | Regulating Money Creation After the Crisis | Harvard Business Law Review | 2011 | http://www.hblr.org/download/HBLR_1_1/Ricks-Regulating_Money_Creation.pdf | Legal Expert | USA |
BIS, OECD, Bank of Canada | Banks do not lend money that has been saved. They create money by making loans and simply writing up both sides of their balance sheet. | Cobden Center Interview | 2015 | Central Bank | Canada | |||
Joseph Wang | FedGuy.com | Bank deposits are created when a bank makes a loan or purchases a security. Rather than “lend out” deposits, a bank simply types digits in its database to add numbers to a borrower’s bank account. | Primer: A Deposit’s Life | FedGuy.com | 2023 | Central Bank | USA | |
Aldasoro, I., and R. Unger (2017) | Bank for International Settlements (BIS), Bank of Germany (Deutsche Bundesbank) | “When banks originate new loans, they create additional means of payment in the form of deposits, increasing the aggregate nominal purchasing power of the economy” | External financing and economic activity in the euro area – Why are bank loans special? | Deutsche Bundesbank Discussion Paper, No. 04 | 2017 | Central Bank | ||
University of Basel (Lukas Altermatt, PhD Candidate), and Economic Advisor at Swiss National Bank (Romain Baeriswyl) | “When banks grant loans, they credit the deposit account of borrowers, which entails a simultaneous increase in loans and deposits” | The effect of the monetary base expansion on the balance sheet of domestic banks | Swiss National Bank Quarterly Bulletin | 2015 | https://www.snb.ch/en/mmr/reference/quartbul_2015_1/source/quartbul_2015_1.en.pdf | Central Bank | ||
Baeriswyl, R., Reynard, S. and Swoboda, A. (2021) | Swiss National Bank | “money is put into circulation in the form of deposits when commercial banks grant credit” | Retail CBDC purposes and risk transfers to the central bank | Swiss National Bank Working Papers 19/2021 | 2021 | https://www.snb.ch/n/mmr/reference/working_paper_2021_19/source/working_paper_2021_19.n.pdf | Central Bank | |
Bang-Andersen, J., L. Risbjerg and M. Spange (2014) | National Bank of Denmark (Danmarks Nationalbank) | ‘… when a household or firm raises a bank loan, this transaction will often, in the first instance, lead to higher bank deposits and thus an increase in the money stock.’ | Money, credit and banking | Danmarks Nationalbank Monetary Review | 2014 | https://www.nationalbanken.dk/en/publications/Pages/2014/09/Money_credit_and_banking.aspx | Central Bank | |
Bank of England (2020) | Bank of England | “Deposits are created when banks issue loans” | Central bank digital currency: Opportunities, challenges and design | Bank of England Discussion Paper | 2020 | Central Bank | ||
Banque de France (2016) | Bank of France (Banque de France) | “When a commercial bank grants a loan to an individual or a firm, for example, the amount of the loan extended is entered in the customer’s bank account: the money has been created. It is said that “loans make deposits”. | Who creates money? | Bank of France Bulletin | 2016 | https://publications.banque-france.fr/sites/default/files/medias/documents/816149_fiche_monnaie.pdf | Central Bank | France |
Banque de France (2016) | Bank of France (Banque de France) | “While it is now generally agreed that “loans make deposits” (it is the banking system that initiates money creation), the opposite was argued until the 1970s by many economists who espoused the fractional reserve theory. … This theory, which in the past held true for some banks, no longer corresponds to the reality. By a simple bank account entry, a loan immediately becomes a deposit, and this accounting entry expands the money in circulation in the economy.” | Who creates money? | Bank of France Bulletin | 2016 | https://publications.banque-france.fr/sites/default/files/medias/documents/816149_fiche_monnaie.pdf | Central Bank | France |
Berry, S., R. Harrison, R. Thomas and I. de Weymarn (2007) | Bank of England (Monetary Analysis Division) | ‘… by far the largest role in creating broad money is played by the banking sector … when banks make loans they create additional deposits for those that have borrowed the money.” | Interpreting movements in broad money | Bank of England Quarterly Bulletin | 2007 | https://www.bankofengland.co.uk/quarterly-bulletin/2007/q3/interpreting-movements-in-broad-money | Central Bank | |
Bianchi, J., and S. Bigio (2017) | Federal Reserve Bank of Minneapolis | “When a bank grants a loan, it simultaneously creates demand deposits—or credit lines.” | Banks, liquidity management and monetary policy | Federal Reserve Bank of Minneapolis Staff Report 503 | 2017 | https://www.minneapolisfed.org/research/staff-reports/banks-liquidity-management-and-monetary-policy | Central Bank | USA |
Canadian Library of Parliament (2015) | Parliament of Canada | “However, it is important to note that the majority of money in the Canadian economy is created within the private banking system every time banks extend new loans like mortgages, consumer loans and business loans. Whenever a bank makes a loan, it simultaneously creates a matching deposit in the borrower’s bank account, thereby creating new money.” | How the Bank of Canada Creates Money Through its Asset Purchases | Parliament of Canada Online Publication No. 2015-51-E | 2015 | https://lop.parl.ca/sites/PublicWebsite/default/en_CA/ResearchPublications/201551E | Central Bank | Canada |
Bindseil, U. (2011) | European Central Bank (ECB), Director General of Market Operations | “Banks create additional bank money by providing credit to the other sectors” | Theory of monetary policy implementation | Book: In: Mercier, P., and F. Papadia, eds., The concrete euro: Implementing monetary policy in the euro area | 2011 | https://www.amazon.com/Monetary-Policy-Implementation-Theory-Present/dp/0199274541 | Central Bank | |
Bluhm, M., C.-P. Georg, and J.-P. Krahnen (2016) | Bank of Germany (Deutsche Bundesbank) | “However, when banks grant a loan, they create money ‘ex nihilo’, that is, they create the deposits that are subsequently used by the customer.” | Interbank Intermediation | Deutsche Bundesbank Discussion Paper | 2016 | Central Bank | ||
Bridges, J., and R. Thomas (2012) | Bank of England | “The supply of broad money in a financially developed economy such as the United Kingdom is determined by transactions between the banking sector (including the central bank) and the nonbank private sector. The most important of these transactions historically has been the provision of credit by the banking sector to the non-bank private sector. When a bank or building society makes a loan to a household or company, it automatically creates a deposit – either for the borrower, or for the recipient of the borrowers’ expenditure if the loan is spent immediately (as in the case of purchasing a house, spending on a credit card or drawing on an overdraft facility). More generally, any transaction between the banking sector and the non-bank private sector will involve the creation or destruction of banking sector deposits and will thus affect the supply of broad money. For example, paying out dividends will create money when a bank credits shareholders’ accounts with a deposit. And issuance of bank long-term debt or equity will destroy money as asset managers purchase the instruments using their deposits” | The impact of QE on the UK economy: Some supportive monetarist arithmetic | Bank of England Working Paper No. 442 | 2012 | Central Bank | ||
Bridges, J., N. Rossiter, and R. Thomas (2011) | Bank of England (Monetary Assessment & Strategy Division) | “… the extension of loans mechanically creates deposits” | Understanding the recent weakness in broad money growth | Bank of England Quarterly Bulletin | 2011 | Central Bank | ||
Bridges, J., N. Rossiter, and R. Thomas (2011) | Bank of England (Monetary Assessment & Strategy Division) | “Any transaction between the banking sector and the non-bank private sector will involve the creation or destruction of banking sector deposits and will thus affect the supply of broad money’ | Understanding the recent weakness in broad money growth | Bank of England Quarterly Bulletin | 2011 | https://www.notion.so/Bank-of-England-6b14e28da4bb4796b6b1343edb6c3cea | Central Bank | |
Bundesbank (2009) | Bank of Germany (Deutsche Bundesbank) | The commercial banks can also create money themselves… in the eurosystem, money is primarily created by the extension of credit…’ | Geld und Geldpolitik (Money & Money Politics) | Book: Geld und Geldpolitik (Money & Money Politics) | 2009 | https://www.amazon.com/Geld-Geldpolitik-Monetary-Freiburger-Anregungen/dp/3828204627 | Central Bank | |
Bundesbank (2012) | Bank of Germany (Deutsche Bundesbank) | ‘How is deposit money created? …As a rule the commercial bank extends a loan to a customer and credits the corresponding amount to his deposit account ... The creation of deposit money is therefore an accounting transaction.’ | Geld und Geldpolitik (Money & Money Politics) | Book: Geld und Geldpolitik (Money & Money Politics) | 2012 | Central Bank | ||
Bundesbank (2017) | Bank of Germany (Deutsche Bundesbank) | ‘Deposits are created by transactions between a bank and a non-bank (its customer) – the bank grants a loan, say, or purchases an asset and credits the corresponding amount to the nonbank’s bank account in return. Banks are thus able to create book (giro) money … a bank’s ability to grant loans and create money has nothing to do with whether it already has excess reserves or deposits at its disposal … a bank can grant loans without any prior inflows of customer deposits. In fact, book money is created as a result of an accounting entry: when a bank grants a loan, it posts the associated credit entry for the customer as a sight deposit by the latter and therefore as a liability on the liability side of its own balance sheet. This refutes a popular misconception that banks act simply as intermediaries at the time of lending – ie that banks can only grant loans using funds placed with them previously as deposits by other customers’ | The role of banks, non-banks and the central bank in the money creation process | Deutsche Bundesbank Monthly Report | 2017 | Central Bank | ||
Butt, N., S. Domit, M. McLeay, R. Thomas, and L. Kirkham (2012) | Bank of England | ‘The supply of broad money is determined by transactions between the banking sector (including the central bank) and the non-bank private sector (non-bank companies and households). The most important of these transactions has tended to be the provision of credit by the banking sector to the non-bank private sector, which automatically creates a deposit (either for the borrower or for the recipient of the borrower’s expenditure) … Bond and equity issuance by banks would reduce the money supply in the short run, as the domestic purchasers of bank bonds and equities would ultimately have to pay for these by lowering their deposits with the UK banking system.’ | What can the money data tell us about the impact of QE? | Bank of England Quarterly Bulletin 2012 Q4 | 2012 | Central Bank | ||
Bê Duc, L., and G. Le Breton (2009) | Bank of France, Senior Economist (Be Duc); European Central Bank (Le Breton) | ‘MFI credit to residents, covering both bank loans and the holding by MFIs of securities issued by non-banks, is the major source of liquidity creation in the economy’ | Flow-of-funds analysis at the ECB: Framework and applications | European Central Bank (ECB) Occasional Paper Series | 2009 | Central Bank | ||
Carney, M. (2018) | Bank of England, Governor | “Finally, and most significantly, the electronic deposits that commercial banks create when they extend loans to borrowers, accounting for fully 80% of money in the system.” Footnote: “… the reality of how money is created often differs from that found in standard textbooks, and rather than banks receiving deposits when households save and then lending them out, bank lending creates deposits…” | The future of money | Speech given to the inaugural Scottish Economics Conference, Edinburgh University | 2018 | Central Bank | ||
Board of Governors of the Federal Reserve System (Carpenter); Koc University, Turkey (Demiralp) | “Second, there is no direct link between money—defined as M2—and bank lending. Banks have access to non-deposit funding (and such liabilities would also not be reservable), so the narrow bank lending channel breaks down in theory.” ; “This information alone suggests that banks’ ability to raise large time deposits increased drastically over the last decade consistent with our earlier discussion about changes to the regulatory environment. The narrow bank lending channel, then, would appear to be ruled out because banks rely on these deposits at the margin rather than transaction deposits to fund new loans.” | Money, Reserves, and the Transmission of Monetary Policy: Does the Money Multiplier Exist? | Finance and Economics Discussion Series of the Divisions of Research & Statistics and Monetary Affairs for the Federal Reserve Board, Washington, D.C. | 2010 | https://www.federalreserve.gov/pubs/feds/2010/201041/201041pap.pdf | Central Bank | USA | |
Cloyne, J., R. Thomas, A. Tuckett, and S. Wills (2015) | Bank of England | “Importantly, the reserves created in the banking sector do not play a central role in the transmission mechanism of QE even though this is often cited as the key mechanism through which QE affects the economy. This is because banks cannot directly ‘lend out’ reserves. Those banks can use them to make payments to each other, but they cannot ‘lend’ them on to consumers in the economy, who do not hold reserves accounts. Moreover, the new reserves are not mechanically multiplied up into new loans and new deposits as predicted by the money multiplier theory. The newly created reserves may not, by themselves, meaningfully change the incentives for the banks to create new broad money by lending.” | A sectoral framework for analysing money, credit and unconventional monetary policy | Bank of England Staff Working Paper, No. 556 | 2015 | Central Bank | ||
Coste,C.-E., C. Tcheng, and I. Vansieleghem (2021) | European Central Bank (Coste, Tcheng); National Bank of Belgium (Vansieleghem) | “When a bank grants a loan, it does not lend existing cash to the borrower but instead creates a swap of debt between the bank and the customer, which materialise in the balance sheet through the simultaneous creation of a loan (asset side) and of a deposit (liability).” | One size fits some: Analysing profitability, capital and liquidity constraints of custodian banks through the lens of the SREP methodology | European Central Bank (ECB) Occasional Paper Series No. 256, Jan. 2021 | 2021 | https://www.ecb.europa.eu/pub/pdf/scpops/ecb.op256~3e9f3e8b43.en.pdf | Central Bank | |
Coste,C.-E., C. Tcheng, and I. Vansieleghem (2021) | European Central Bank (Coste, Tcheng); National Bank of Belgium (Vansieleghem) | “Banks grant loans to customers by creating commercial bank money which takes the form of customer loans on the asset side of its balance sheet and customer deposits on the liability side” | One size fits some: Analysing profitability, capital and liquidity constraints of custodian banks through the lens of the SREP methodology | European Central Bank (ECB) Occasional Paper Series No. 256, Jan. 2021 | 2021 | https://www.ecb.europa.eu/pub/pdf/scpops/ecb.op256~3e9f3e8b43.en.pdf | Central Bank | |
Doherty, E., B. Jackman, and E. Perry (2018) | Reserve Bank of Australia | “When a bank extends a loan, it makes a sum of money available to the borrower (for example, to buy a car, a house or equipment for a business). Typically, this will be in the form of a deposit. The bank may credit the deposit account of the borrower, who withdraws the funds when making their payments” | Money in the Australian Economy | Reserve Bank of Australia Bulletin | 2018 | Central Bank | ||
ECB (2015) | European Central Bank (ECB) | “Commercial banks can also create so-called “inside” money, i.e. bank deposits – this happens every time they issue a new loan.” | What is money? | “About” section of the European Central Bank (ECB) Website | 2015 | https://www.ecb.europa.eu/ecb/educational/explainers/tell-me-more/html/what_is_money.en.html | Central Bank | European Union |
Federal Reserve Bank of Richmond (1952) | Federal Reserve Bank of Richmond | “Banks can lend money by simply increasing their deposit liabilities (that is, by a bookkeeping entry) and since their income is increased by each additional loan” | Demand deposits in the money supply | Monthly Review of the Federal Reserve Bank of Richmond | 1952 | https://fraser.stlouisfed.org/files/docs/publications/frbrichreview/pages/64861_1950-1954.pdf | Central Bank | USA |
Grym, A., P. Heikkinen, K. Kauko, and K. Takala (2017) | Bank of Finland | “Most money is, however, scriptural currency created as a result of lending by deposit banks” | Central bank digital currency | Bank of Finland Economics Review | 2017 | Central Bank | ||
Jakab, Z., and M. Kumhof (2015) | Bank of England | “Saving is therefore a consequence, not a cause, of such lending. Saving does not finance investment, financing does.” ; “The bank therefore creates its own funding, deposits, in the act of lending.” | Banks are not intermediaries of loanable funds – and why this matters | Bank of England Working Paper No. 529 | 2015 | Central Bank | ||
Jensen, H. F. (2014) | National Bank of Denmark (Danmarks Nationalbank) | “Banks create deposits, and thus money when providing loans” | Money at the bank is also good money | Press conference, September 23, 2014 | 2014 | https://www.nationalbanken.dk/en/pressroom/Documents/2014/09/Press story - Money.pdf | Central Bank | |
Johnson, Christian A., and Steigerwald, Robert S. (2006) | Loyola University Chicago School of Law (Johnson, Professor); Federal Reserve Bank of Chicago (Steigerwald, Senior Financial Markets Advisor) | “Both commercial banks and central banks take deposits and create credit money (called ‘central bank money’ and ‘commercial bank money,’ respectively)” | The Truth about Banks: Banks create new money when they lend, which can trigger and amplify financial cycles | International Monetary Fund (IMF) Seminar on Current Developments in Monetary and Financial Law | 2007 | Central Bank | USA | |
Jordan, T.J. (2018) | Swiss National Bank, Chairman of the Governing Board | ‘In our present-day financial system, the creation of deposits by banks is closely linked to the granting of loans. When a bank provides a loan, it credits the amount in question to the borrower in the form of a deposit to his or her account. This leads to an increase in credits on the assets side and in customer deposits on the liabilities side of the bank’s balance sheet … While the total volume of central bank money remains unchanged, lending by an individual bank increases deposits in the banking system and hence also the overall money supply’ | How money is created by the central bank and the banking system | Speech to the Zurich Economic Society, Zurich, Switzerland on 1/16/2018 | 2018 | Central Bank | ||
King (1994) | Bank of England, Chief Economist & Executive Director | “Textbooks assume that money is exogenous. It is sometimes dropped by helicopters, as in Friedman’s analysis of a ‘pure’ monetary expansion, or its supply is altered by open-market operations. In the United Kingdom, money is endogenous—the Bank supplies base money on demand at its prevailing interest rate, and broad money is created by the banking system. The endogeneity of money has caused great confusion, and led some critics to argue that money is unimportant. This is a serious mistake.” | The transmission mechanism of monetary policy | Bank of England Quarterly Bulletin, August 1994 | 1994 | Central Bank | ||
King (2012) | Bank of England, Former Governor | “When banks extend loans to their customers, they create money by crediting their customers’ accounts.” | Speech to the South Wales Chamber of Commerce | Speech to the South Wales Chamber of Commerce | 2012 | Central Bank | ||
King, M. (2016) | Bank of England, Former Governor | “when a bank makes a loan, it creates a deposit of equal value in the account of the borrower. That deposit can be withdrawn on demand and used to make payments. It is money.” | The End of Alchemy: Money, banking and the future of the global economy | Book: The End of Alchemy by Abacus Press | 2016 | https://www.amazon.com/End-Alchemy-Banking-Future-Economy-ebook/dp/B00Y1F227O | Central Bank | |
Krėpšta, S. (2017) | Bank of Lithuania | “Bank credit is not predicated on savings; Bank credit creates money (deposits) and purchasing power … This is in stark contrast with traditional view of banks as financial intermediaries (saving → deposits → credit)” | Mission (im)possible: Connecting bank credit, money creation and economic imbalances | Bank of England Lecture | 2017 | Central Bank | ||
Kuzin & Schobert (2014) | Bank of Germany (Deutsche Bundesbank) | “[B]anks create the major part of money in our financial system … banks expand the size of both sides of their balance sheets by granting loans and creating deposits simultaneously” | Why does bank credit not drive money in Germany (any more)? | Journal: Economic Modelling (Peer Reviewed) | 2014 | Central Bank | ||
Lawrence, G. (2008) | Reserve Bank of New Zealand | “While the Reserve Bank creates fiat money, in practice, a much larger share of money is created by registered banks and other private institutions. In the process of creating money, these private institutions also create credit, which by enabling the funding of investment, contributes to the economy’s ability to grow.” | The Reserve Bank, private sector banks and the creation of money and credit | Reserve Bank of New Zealand: Bulletin, Vol. 71, No. 1 | 2008 | Central Bank | ||
Bank of England | “In the modern economy, most money takes the form of bank deposits. But how those bank deposits are created is often misunderstood: the principal way is through commercial banks making loans. Whenever a bank makes a loan, it simultaneously creates a matching deposit in the borrower’s bank account, thereby creating new money. The reality of how money is created today differs from the description found in some economics textbooks: Rather than banks receiving deposits when households save and then lending them out, bank lending creates deposits.” (emphasis in original) | Money creation in the modern economy | Bank of England Quarterly Bulletin 2014 Q1 | 2014 | https://www.bankofengland.co.uk/quarterly-bulletin/2014/q1/money-creation-in-the-modern-economy | Central Bank | ||
Norges Bank (2018) | Bank of Norway (Norges Bank) | “Money and credit creation by banks is a cornerstone of any modern economy featuring deposit money. Money is created when banks make loans to customers that are then deposited in a bank account. Such loans increase the loan total on the asset side of the balance sheet and the deposit total on the liabilities side equally. Accordingly, banks are in the unique position of being able to create money, i.e. their own financing.” | Central bank digital currencies | Norges Bank Papers, No. 1 | 2018 | Central Bank | ||
Ponomarenko, A. (2016) | Bank of Russia | “Money is created by bank lending. When a bank grants a loan, it books the loan as an asset and the newly created deposit as a liability. Therefore, when banks lend to borrowers, they thereby create deposits (initially held by the borrowers).” | A note on money creation in emerging market economies | Bank of Finland Institute for Emerging Economies (BOFIT) Discussion Papers, 4 | 2016 | Central Bank | ||
Potter, S.M. (2018) | Federal Reserve Bank of New York - Executive Vice President | “banks create money-like assets in the form of bank deposits. Similarly, nonbank institutions, such as money market funds (MMFs), can also provide money-like assets” | The supply of money-like assets | Remarks for the American Economic Association Panel Session "The Balance Sheets of Central Banks and the Shortage of Safe Assets | 2018 | https://www.newyorkfed.org/newsevents/speeches/2018/pot180106 | Central Bank | USA |
Ramanauskas, T., S. Matkėnaitė, and V. Rutkauskas (2016) | Bank of Lithuania | “Moreover, standard models still retain major misconceptions about financial interactions and the role of bank credit. With only a handful of exceptions,* the mainstream macromodels regard bank credit as a means to redistribute existing real savings (or purchasing power), whereas in fact, by issuing loans, banks create new purchasing power.” ; “Credit is not predicated upon existing savings but rather creates new savings and is therefore to some extent self-financing.” | Credit and money creation from the integrated accounts perspective | Pinigø studijos 2016/1 (Monetary Studies Series) of the Bank of Lithuania | 2016 | Central Bank | ||
Reserve Bank of New Zealand (2019) | Reserve Bank of New Zealand | “Yes, money creation in New Zealand operates as described in the video produced by the Bank of England, and also as described in the March 2008 article published in the Reserve Bank Bulletin… Many modern economies have settled upon a system of credit creation by the private sector, regulated by the Government and with monetary policy conducted independently by a Central Bank, as the cheapest and most efficient way to create and maintain the money supply.” | Letter from Angus Barclay, External Communications Adviser, in response a request to the Reserve Bank, under the provisions of section 12 of the Official Information Act (the OIA), asking a series of 14 questions | Letter from Angus Barclay, External Communications Adviser for the Reserve Bank of New Zealand | 2019 | Central Bank | ||
Riksbank (2020) | Swedish National Bank (Sveriges Riksbank) | “Banks also supply new money to the system when they issue new loans.” | What is money? | Swedish National Bank Website | 2020 | https://www.riksbank.se/en-gb/payments--cash/what-is-money/ | Central Bank | |
Rule, G. (2015) | Bank of England | ‘The initial process of lending involves only the extension of an individual commercial bank’s balance sheet, an increase in assets from the freshly created loan and a matching increase in liabilities from the accompanying deposit created for the recipient of the loan.’ | Understanding the central bank balance sheet | Centre for Central Banking Studies (CCBS) Handbook No. 32 | 2015 | https://www.bankofengland.co.uk/ccbs/understanding-the-central-bank-balance-sheet | Central Bank | |
Tischer, J. (2018) | Bank of Germany (Deutsche Bundesbank); Johannes Gutenberg University Mainz | "Banks can create new loans by simply extending their balance sheet without needing maturing assets in that process.” | Quantitative easing, portfolio rebalancing and credit growth: Micro evidence from Germany | Deutsche Bundesbank Discussion Paper No. 20/2018 | 2018 | Central Bank | ||
Tucker, P. (2007) | Bank of England - Deputy Governor for Financial Stability | “Banks extend credit by simply increasing the borrowing customer’s current account … That is, banks extend credit [i.e. make loans] by creating money” | Money and credit: Banking and the macroeconomy | Speech by Executive Director and Member of the Monetary Policy Committee of the Bank of England, at the Monetary Policy and the Markets Conference | 2007 | https://www.bankofengland.co.uk/speech/2007/money-and-credit-banking-and-the-macroeconomy | Central Bank | |
Unger, R. (2016) | Bank of Germany (Deutsche Bundesbank) | “As traditional bank is able to issue a liability that is accepted as a means of payment — demand deposits — it has no need to pre-finance its loan. If [a bank] wants to extend a loan it simply credits the borrower’s account with the amount to be loaned, thereby creating both an asset — the loan — and a liability — the deposit — at the same time ... What sets traditional banks apart from all other financial institutions is their ability to issue a liability that serves the non-bank sector as a means of payment: demand deposits” | Traditional banks, shadow banks and the US credit boom – credit origination versus financing | Discussion Paper Deutsche Bundesbank No 11/2016 | 2016 | Central Bank | ||
Federal Reserve Bank of New York, Senior Vice President | “The idea of a regular injection of reserves-in some approaches at least-also suffers from a naive assumption that the banking system only expands loans after the System (or market factors) have put reserves in the banking system. In the real world, banks extend credit, creating deposits in the process, and look for the reserves later. The question then becomes one of whether and how the Federal Reserve will accommodate the demand for reserves.” | Operational Constraints on the Stabilization of Money Supply Growth | 1969 | https://www.bostonfed.org/-/media/Documents/conference/1/conf1i.pdf | Central Bank | USA | ||
Towers, G. (1939) | Bank of Canada | “Each and every time a bank makes a loan; new bank credit is created – new deposits – brand new money.” | Minutes of Proceedings and Evidence Respecting the Bank of Canada | Committee on Banking and Commerce. Ottawa. Govemment Printing Bureau. | 1939 | https://books.google.com/books/about/Minutes_of_Proceedings_and_Evidence_Resp.html?id=0n36zAEACAAJ | Central Bank | Canada |
Federal Reserve Bank of Chicago (1994) | Federal Reserve Bank of Chicago | “Loans are made by crediting the borrower’s account, i.e., by creating additional deposit money… The actual process of money creation takes place primarily in banks… They do not really pay out loans from the money they receive as deposits. If they did this, no additional money would be created.” | Modern Money Mechanics | Modern Money Mechanics (1994) | 1994 | Central Bank | USA | |
Tim Skeet (2020) | Bank of China Limited London Branch, Executive Management Committee & Chief Institutional Relationship Officer; Former Banker at Royal Bank of Scotland, Bank of America, ABN Amro, Barclays, and Morgan Stanley. | “However, where these banks deposits come from is often misunderstood. A common belief is that banks simply act as intermediaries.They accept deposits from society's savers, and they lend the same money to society's borrowers.This would mean that bank deposits are created by the decision of consumers to save, with banks then lending out these savings or deposits to borrowers. But it's not true. The actual relationship is the inverse of that usually assumed. Commercial banks decide how much they can profitably lend in the market, and then that lending activity creates new bank deposits.” | How Banks Create Money | Finance Unlocked educational channel on YouTube | 2020 | Private Bank | UK | |
Choulet, C. (2015) | BNP Paribas Group Economic Research | “When a bank grants a loan, it creates a new deposit at the same time. In other words, it creates money by crediting its customer’s account.” | QE and bank balance sheets: The American experience | Commercial bank website: BNP Paribas Group Economic Research, July-August 2015 | 2015 | Private Bank | ||
Deutsche Bank (2016) | Deutsche Bank | “the central bank issues central bank money while commercial banks create bank deposits or so-called “commercial bank money”. Banks do so by granting loans to customers on the one hand, and crediting (other) customers’ deposit accounts on the other hand.” | Cash, freedom and crime | Deutsche Bank Research Paper | 2016 | Private Bank | ||
ING (2018) | ING (Commercial Bank) | “But the creation of money does not, as is often popularly imagined, arise from people choosing to save rather than spend, with banks then lending the money on to others to invest. Banks are not mere intermediaries. Instead, their decisions to lend create the deposits. … New money does not depend solely on banks making loans. Banks also create money when buying assets such as bonds from non-banks, thereby increasing the latter’s deposits.” | The money creation paradox: Banks create money, but also have to borrow it | Commercial bank website: ING Economic and Financial Analysis | 2018 | Private Bank | Netherlands | |
Pozsar, Z. (2014) | Office of Financial Research; also Credit Suisse, Director in the Global Economics and Strategy research group. | ‘The vast majority of credit and money claims ... begin life as a loan and the creation of a demand deposit in equal amounts’ | Shadow banking: The money view | Office of Financial Research (OFR) Working Paper | 2014 | Private Bank | ||
Quignon, L. (2019) | BNP Paribas Group, Head of Banking Economics | “Commercial banks create money by using book entries. Take the example of an individual, Mister X, who takes out a consumer loan. When issuing the loan, the bank credits Mister X’s checking account (demand deposits) in the amount M corresponding to the loan, which increases the ‘customer deposits’ in its liabilities, and therefore the money supply” | Money creation: How does it work? | Commercial bank website: BNP Paribas | 2019 | Private Bank | ||
Qiu, Junfeng (2006) | Queen’s University, Canada | “Because bank deposits can be used as means of payment, banks can directly create and lend new deposits that are not backed by money collected from depositors.” | Banks as dealers of credit money: Comparing the roles of banks and non-banks in the provision of liquidity | Queen’s University, Department of Economics Job Market Paper | 2006 | http://qed.econ.queensu.ca/pub/students/qiuj/JMP_BankCreditMoney.pdf | Economist | Canada |
Rendahl, P., and L.K. Freund (2019) | University of Cambridge (Rendahl - Professor; Freund - PhD Candidate) | “In contemporary societies, the great majority of money is created by commercial banks rather than the central bank. Whenever a bank makes a loan, it simultaneously creates a matching deposit on the liability side of its balance sheet. This happens when, say, a new mortgage contract is concluded, but also seamlessly in everyday life” | Banks do not create money out of thin air | Voxeu.org | 2019 | https://voxeu.org/article/banks-do-not-create-money-out-thin-air | Economist | |
Ryan-Collins, J., T. Greenham, R.A. Werner, and A. Jackson (2011) | The New Economics Foundation | “However, this is not a relationship that is compatible with widespread public perception of ‘banks as intermediaries’ or the ‘money multiplier’ model in economics and finance textbooks. Banks do not intermediate the deposits they receive. Banks create brand new money at will by extending credit or buying assets.” ”The process of creating commercial bank money – the money that the general public use – is as simple as a customer signing a loan contract, and the bank typing numbers into a new account set up for that customer. Similarly, the bank creates new money when it buys assets, goods or services on its own account, or pays its staff salaries or bonuses. These newly created demand deposits represent new spending power – or money – in the economy. It is not spending power that has been taken out of someone else’s savings.” ”When banks are confident, they will create new money by creating credit and new bank deposits for borrowers. When they are fearful, they rein in lending, limiting the creation of new commercial bank money. If more loans are repaid than issued, the money supply will shrink. The size of the commercial bank credit balloon, and therefore the money supply of the nation, depends mainly on the confidence and incentives of the banks.” | Where does money come from? A guide to the UK monetary and banking system | Book: Where does money come from? A guide to the UK monetary and banking system | 2011 | https://www.amazon.com/Where-Does-Money-Come-Monetary/dp/1908506547 | Economist | |
Schumpeter, J. (1954) | Harvard University | “… this alters the analytic situation profoundly and makes it highly inadvisable to construe bank credit on the model of existing funds being withdrawn from previous uses by an entirely imaginary act of saving and then lent out their owners. It is much more realistic to say that the banks ‘create credit’, that is, that they create deposits in their act of lending, than to say that they lend the deposits that have been entrusted to them.” | History of Economic Analysis | Book: History of Economic Analysis | 1954 | https://www.academia.edu/download/38660850/History_of_Economic_Analysis-J.A.Schumpeter.pdf | Economist | USA |
Shaikh, A. (2016) | New School University, Professor of Economics (NYC) | “Now suppose individual banks make new loans totaling £250,000. These will show up on the asset side of balance sheets of the whole banking system as aggregate loans (LN) and initially as an equivalent amount newly created deposits credited to the accounts of the borrowers (DP1): “loans create deposits”” | Capitalism: Competition, Conflict, Crises | Book: Capitalism: Competition, Conflict, Crises, Oxford University Press | 2016 | https://www.amazon.com/Capitalism-Competition-Conflict-Anwar-Shaikh/dp/0199390630 | Economist | USA |
Stepashova, A. (2017) | University of Oxford - Saïd Business School | “inside money is fully endogenously determined by the economic activity.” | The money multiplier and asset returns | Online Author-Published Paper | 2017 | Economist | ||
Stiglitz, J., and Greenwald, B. (2003) | Columbia University & Nobel Laureate in Economics (Stiglitz, Professor); Columbia Business School (Greenwald) | “When a bank extends a loan, it creates a deposit account, increasing the supply of money. ... the creation of money and the creation of credit occur together” | Towards a New Paradigm in Monetary Economics | Book: Towards a New Paradigm in Monetary Economics, Cambridge University Press | 2003 | https://www.amazon.com/Paradigm-Monetary-Economics-Raffaele-Mattioli/dp/0521008050 | Economist | USA |
Stigum, Marcia (1990) | Yale University - former economics professor | ‘In the course of their lending activity, banks create money.’ | The Money Market | Book: The Money Market | 1990 | https://www.amazon.com/Stigums-Money-Market-Marcia-Stigum/dp/0071448454 | Economist | USA |
Storm, S. (2017) | Institute for New Economic Thinking; Delft University of Technology | “Once one acknowledges the empirical fact that commercial banks create new money ex nihilo, which means money supply is endogenous, the model of an interest-rate clearing loanable funds market becomes untenable. … It appears that academic economists who stick to the loanable-funds approach are behind the curve.” | Some thoughts on secular stagnation, loanable funds and the ZLB | Institute for New Economic Thinking (INET) Working Paper | 2017 | Economist | ||
Michigan State University | “[B]orrowing and lending determines money supply, the effectiveness of monetary policy on GDP and inflation rate (i.e., the validity of Fisher’s exchange equation) depends on borrowing and lending. It implies that quantity theory of money is false because borrowing and lending is cause while money supply, GDP and inflation rate are effect.” | Quantity Theory of Money: True or False | International Journal of Economics and Finance (Peer Reviewed) | 2017 | https://pdfs.semanticscholar.org/5eaa/96dff1b7dafae35eef94fe945aa4af9a4f0c.pdf | Economist | USA | |
Turner, A. (2012) | Financial Services Authority - Chairman (UK Government) | “The banking system can thus create credit and create spending power – a reality not well captured by many apparently common sense descriptions of the functions which banks perform. Banks it is often said take deposits from savers (for instance households) and lend it to borrowers (for instance businesses) … But in fact they don’t just allocate preexisting savings, collectively they create both credit and the deposit money which appears to finance that credit.” | Monetary and Financial Stability: Lessons from the Crisis and from classic economics texts | Speech at South African Reserve Bank, 11/2/2012 | 2012 | Economist | ||
Turner, A. (2015) | Financial Services Authority - Chairman (UK Government) | “[B]anks do not just intermediate flows of already existing money from savers to borrowers, but create credit, money and purchasing power ex nihilo” | Endogenous Money Creation and Its Implications for Central Banking and Monetary Policy After the Crisis | Institute for New Economic Thinking (INET) and Social Develepmont Research Foundation (SDRF) Seminar | 2015 | Economist | ||
Urbschat, F. (2018) | Ludwig Maximilian University of Munich | “[I]f a bank grants a new credit to a firm or a household new deposits are created by the bank. Put differently, the creation of a new long-term asset (a real sector credit) goes hand in hand with the creation of a new short-term liability (in form of deposits).” | The good, the bad and the ugly: Impact of negative interest rates and QE on the profitability and risk-taking of 1,600 German banks | Munich Discussion Paper No. 2018-7 | 2018 | Economist | ||
van Egmond, N. D. & B. J. M. de Vries | Utrecht University; Sustainable Finance Lab | “The current financial system appears to be fundamentally unstable. Lacking central coordination, euphoric herd behavior of the many private banks causes the unjustified creation of too much money and subsequent boom-and-bust behavior of the economic system.” | Dynamics of a sustainable financial-economic system | Sustainable Finance Lab (SFL) Working Paper | 2016 | Economist | ||
von der Becke, S. (2015) | ETH Zurich (University) | Commercial banks create money through the process of credit creation by issuing liabilities that are used as final means of settlement by deposit holders. | Liquidity creation and financial instability | PhD Thesis at ETH Zurich | 2015 | Economist | ||
New York University - Professor | “...those banks that issue notes or open current accounts... have a fund from which to grant loans, over and above their own resources and those resources of other people that are at their disposal” | The Theory of Money & Credit | Book: The Theory of Money & Credit | 1912 | Economist | USA | ||
Sophia University (Tokyo, Japan) | “Necessary and sufficient condition for recovery is increased credit creation used for GDP transactions — a variable neglected by traditional post-war economic theories, which tend to consider each bank merely as a financial intermediary, while in actual fact each bank can create new money out of nothing by extending bank loans.” | No Recovery without Reform? An Evaluation of the Evidence in Support of the Structural Reform Argument in Japan | Asian Business & Development (Peer Reviewed) | 2004 | Economist | UK | ||
Werner, R.A. (2014) | University of Southampton | “This study establishes for the first time empirically that banks individually create money out of nothing. The money supply is created as ‘fairy dust’ produced by the banks individually, ‘out of thin air’.” ; “We now know, based on empirical evidence, why banks are different, indeed unique […] it is because they can individually create money out of nothing.” | ‘Can banks individually create money out of nothing? — The theories and the empirical evidence | International Review of Financial Analysis (Peer Reviewed) | 2014 | https://www.sciencedirect.com/science/article/pii/S1057521914001070 | Economist | UK |
Werner, R.A. (2015) | University of Southampton | “The financial intermediation and the fractional reserve theories of banking are rejected by the evidence.” ; “The question is considered why the economics profession has failed over most of the past century to make any progress concerning knowledge of the monetary system, and why it instead moved ever further away from the truth as already recognised by the credit creation theory well over a century ago.” ; “banks create credit and money out of nothing” | A lost century in economics: Three theories of banking and the conclusive evidence | International Review of Financial Analysis (Peer Reviewed) | 2015 | https://www.sciencedirect.com/science/article/pii/S1057521915001477#bb0655 | Economist | UK |
Werner, R.A. (2015) | University of Southampton | “The test of booking a bank loan in banking software yields the finding that the credit creation theory of banking alone conforms to the empirical facts... Today, the vast majority of the public is not aware that the money supply is created by banks, that banks do not lend [pre-existing] money, and that each bank creates new money when it extends a loan.” | A lost century in economics: Three theories of banking and the conclusive evidence | International Review of Financial Analysis (Peer Reviewed) | 2015 | https://www.sciencedirect.com/science/article/pii/S1057521915001477#bb0655 | Economist | UK |
Yamaguchi, K. (2013/2022) | Japan Futures Research Center; University of Ankara, Turkey | “This method of loan payments indicate straightforwardly that banks creates money out of nothing directly into non-financial sector’s deposits account.” | Money and Macroeconomic Dynamics: Accounting System Dynamics Approach | Book: Money and Macroeconomic Dynamics | 2022 | http://www.muratopia.org/Yamaguchi/macrodynamics/Macro Dynamics.pdf | Economist | |
Abel, I., K. Lehmann, and A. Tapaszti (2016) | Budapest Business School (Abel, Lehmann); Central Bank of Hungary (Magyar Nemzeti Bank) (Tapaszti) | “Banks create money through lending.” ; “All in all, it can be stated that banks do not act as intermediaries with respect to savings, but basically allocate purchasing power among economic actors in line with certain market, business and economic considerations.”; “When generating loans to their clients, commercial banks create money. The disbursement of the loan does not require the prior collection of additional funds, since as the loan is approved, the amount is credited to the account of the client kept by the bank. This act also creates the source of the loan. Lending is not the financial intermediation of savings in the sense that banks do not need to directly collect savings for lending or to reallocate them from somewhere else.” | The controversial treatment of money and banks in macroeconomics | Financial and Economic Review (Peer Reviewed) | 2016 | Economist | ||
Minsky, H. (1982/2016) | Washington University St. Louis | “Money is created as banks lend—mainly to business—and money is destroyed as borrowers fulfill their payment commitments to banks. Money is created in response to businessmen's and bankers' views about prospective profits, and money is destroyed as profits are realized.” | Can “It” Happen Again? Essays on Instability and Finance | Book, Published by Routledge | 1982/2016 | https://www.amazon.com/Barnes-Noble-Routledge-Classics-set/dp/1138641952 | Economist | USA |
Belke, A., and T. Polleit (2010) | Institute of Business & Economic Studies (IBES) at the University of Duisburg-Essen (Belke, Director); Degussa Goldhandel GmbH (Polleit, Chief Economist) | ‘Money is created whenever [the banking sector] buys an asset (security, stock, foreign exchange holdings, etc.) from non-banks and issues its own liabilities in return (which are considered money)’ | Monetary Economics in Globalised Financial Markets | Textbook | 2010 | Economist | ||
Bezemer, D. (2016) | University of Groningen (The Netherlands) | On the nature of money, it has become widely accepted that credit is created ‘out of nothing’, rather than only intermediated. Previously, this was a cherished point of ‘monetary cranks’ and the heterodox only. | Towards an ‘accounting view’ on money, banking and the macroeconomy: History, empirics, theory | Cambridge Journal of Economics (Peer Reviewed) | 2016 | https://academic.oup.com/cje/article-abstract/40/5/1275/1987682 | Economist | |
Brunnermeier, M.K., and Y. Sannikov (2016) | Princeton University | “Financial institutions are able to create money – when they extend loans to businesses and home buyers, they credit the borrowers with deposits and so create inside money.” | The I Theory of Money (Working Paper No. 22533) | National Bureau of Economic Research (NBER) Working Paper | 2016 | Economist | ||
Brunnermeier, M.K., H. James, and J.-P. Landau (2016) | Princeton University (Brunnermeier & James); Paris Institute of Political Studies (Landau) | “Banks lend to borrowers and create credit and money simultaneously” ; ”assets and liabilities of the bank have thus expanded simultaneously, and the bank has in essence created its own funding through the very process of lending” ; “Because the new entries on both sides of the bank’s balance sheet are in the name of [the same person], there is no intermediation of loanable funds between savers and borrowers at the time the loan was made” | The Euro and the Battle of Ideas | Book: The Euro and the Battle of Ideas, Princeton University Press | 2016 | https://www.amazon.com/Euro-Battle-Ideas-Markus-Brunnermeier/dp/0691172927 | Economist | |
Bénassy-Quéré, A., B. Coeuré, P. Jacquet, and J. Pisani-Ferry (2010) | Paris School of Economics (Benassy-Quere); European Central Bank (Coeure); Global Development Network (Jacquet); Paris Institute of Political Studies (Pisani-Ferry) | There is money creation each time the banking sector extends a loan to nonbank customers, because this amounts to increasing the total amount of deposits in the system’ | Economic Policy: Theory and Practice | Book: Economic Policy: Theory and Practice, Oxford University Press | 2010 | https://www.amazon.com/Economic-Policy-Practice-Agnès-Bénassy-Quéré/dp/0195322738 | Economist | |
Carlin, W., and D. Soskice (2015) | University College London (Wendy Carlin); London School of Economics (David Soskice) | “Commercial banks create money by granting credit” ; “commercial banks will create money by extending loans when it is profitable for them to do so” | Macroeconomics: Institutions, Instability, and the Financial System | Book: Macroeconomics: Institutions, Instability, and the Financial System, Oxford University Press | 2015 | https://www.amazon.com/Macroeconomics-Institutions-Instability-Financial-System/dp/0199655790 | Economist | |
Castellano, G.G, and M. Dubovec (2018) | Associate Professor at the University of Warwick School of Law, Research Associate at École Polytechnique (Castellano); Executive Director at the National Law Center for Inter-American Free Trade and Part-Time Professor of Practice at the University of Arizona James E. Rogers College of Law (Dubovec) | “When banks engage in asset-based lending via non-banking institutions, not only new purchasing power (through deposits) is created, banks also de facto participate in the creation of new credit.” | Credit creation: Reconciling legal and regulatory incentives | Journal: Law & Contemporary Problems, published by Duke University (Peer Reviewed) | 2018 | Economist | USA | |
De Montfort University | “I therefore concur with Werner in that credit institutions, which include but are not limited to commercial banks, create money by granting loans, but I do so for different reasons.” ; “The post-crisis literature on money and banking has asserted itself around a new consensus, which sees banks as playing a central role in the dynamics of “money”, often equated to customer sight deposits. According to this view, “bank loans create deposits”, an endorsement of the ‘credit creation theory’ of banking, and an ostensible refutation of the two competing theories, the ‘financial intermediation theory’ and the ‘fractional reserve theory’.” | Money creation by credit institutions under the law: A response to Werner | Journal of Banking, Finance & Sustainable Development | 2020 | Economist | |||
University of Maryland (Daly); University of Vermont (Farley) | “However, over 90% of our money supply today is not currency but demand deposits created by the private commercial banking system. They are created out of nothing and loaned into existence by the private commercial banks under rules set up by the government.” | Ecological Economics: Principles and Applications, Second Edition | Book: Ecological Economics | 2010 | https://amazon.com/Ecological-Economics-Second-Principles-Applications/dp/1597266817/ | Economist | United States | |
Didenko, A.N., and R.P. Buckley (2019) | University of New South Wales | "commercial banks also “create” official currency by issuing loans” | The evolution of currency: Cash to cryptos to sovereign digital currencies | Fordham International Law Journal (Peer Reviewed) | 2019 | Economist | ||
Donaldson, J. R., G. Piacentino, and A. Thakor (2018) | Washington University of St. Louis (Donaldson, Thakor); Columbia University (Piacentino) | “The key to the bank’s ability to do this is the issuance of “fake” warehouse receipts by the bank. This creates a striking contrast with the existing literature, which views the process of liquidity creation as banks accepting deposits that are then loaned out, i.e., deposits create loans. In our theory, loans also create deposits.” | Warehouse Banking | Journal of Financial Economics (Peer Reviewed) | 2018 | Economist | USA | |
Faure, S. and Gersbash, H. (2017) | Center for Financial Studies (Germany) | “Commercial banks create the second form of money when they grant loans to firms or other banks. This money is a claim of households, firms, or banks against other banks. It is privately created by banks and destroyed when bank equity is bought and loans are repaid.” | Loanable funds versus money creation in banking: A benchmark result | Center for Financial Studies (CFS) Working Paper Series | 2017 | Economist | ||
Godley, W., and M. Lavoie (2012) | Cambridge University (Godley); University of Ottawa (Lavoie) | “On the other hand there is inside money, which is created by commercial banks when they make loans, and which ceases to exist when loans are repaid. This second kind of money will be called private money, since it is issued by private institutions, namely private banks. … money generated by loans from private banks (e.g. to finance inventories when production takes time) is of the utmost importance in the real world of monetized economies.” | Monetary economics: An integrated approach to credit, money, income, production and wealth | Book: Monetary Economics, Palgrave Macmillan | 2012 | https://amazon.com/Monetary-Economics-Integrated-Approach-Production/dp/0230301843/ | Economist | Canada, UK |
Goodhart, C. (2017) | London School of Economics; Political Science Financial Markets Group | “During the last two centuries there have been four main approaches to analysing the determination of the money supply, to wit: (1) Deposits cause Loans, (2) The Monetary Base Multiplier, (3) The Credit Counterparts Approach and (4) Loans cause Deposits. All four approaches are criticized, especially (2) which used to be the standard academic model, and (4) which is now taking over as the consensus approach. Instead, I argue that banking is a service industry, which sets the terms and conditions whereby the private sector can create additional money for itself.” ; “Rather than claim that banks create credit, and then such loans create money, it would be much nearer the truth to say that the private sector creates credit and money for itself, and that the banking sector is the medium through which private sector clients do so, on the terms and conditions set out by the banks.” | The determination of the money supply: Flexibility versus control | Journal: Proceedings of the Money, Macroeconomics and Finance Research Group | 2017 | Economist | ||
Huber, J. (2017) | Martin Luther University (Germany) | “Banks create credit and bankmoney whenever they make payments to nonbanks, for example when granting loans and overdrafts, or purchasing assets such as bonds, stocks, other securities or real estate, and also when paying salaries and bonuses to employees or nonbank service providers.” ; “The banking industry, however, does not just supply what is demanded. The banks supply bankmoney very selectively according to their own preferences. Ever more frequently they initiate business opportunities themselves, especially in investment banking. By contrast, the central banks today deliver the reserves as demanded by the banking sector; or, as needed in a banking and debt crisis to avoid pending bank insolvencies.” | Split-circuit reserve banking – functioning, dysfunctions and future perspectives | Real-World Economics Review (Peer Reviewed) | 2017 | Economist | ||
Imhof, S., C. Monnet, and S. Zhang (2017) | Swiss National Bank (Imhof, Monnet), University of Bern (Monnet), and London School of Economics (Zhang) | "Firms need funding and they obtain it from banks. Banks finance firms by creating deposits.” | Risk and liquidity requirements in a model of fractional reserve banking | Konstanz Seminar | 2017 | https://konstanzseminar.org/wp-content/uploads/2018/papers/Monnet_PlainMoneyBank_v6_1.pdf | Economist | |
Jakab, Z., and M. Kumhof (2014) | International Monetary Fund (Jakab, Kumhof); Center for Economic and Policy Research (Kumhof); former Barclays banker (Kumhof); | ‘… the banking system as a whole does not collect additional deposits from non-bank depositors, it creates additional deposits for non-bank borrowers. There are no pre-existing loanable funds, new funds materialize on the banker’s keyboard at the moment he makes a new loan.’ | Models of banking: Loanable funds or loans that create deposits? | Online Author-Published Paper | 2014 | Economist | ||
Keen, S. (2014) | University College London | “But there is a very big difference between a macroeconomic theory which begins from the proposition that ‘Aggregate demand equals aggregate income’ and one that commences from ‘Aggregate demand equals income plus the change in debt’. The former is only true in a Loanable Funds model of lending; the latter is true in the endogenous money world in which we actually live – as Schumpeter, Minsky, and (arguably) Keynes have asserted before us.” | Endogenous money and effective demand | Review of Keynesian Economics (Peer Reviewed) | 2014 | Economist | ||
University College of London | “Since then [2014], Neoclassical textbooks have continued to teach the Loanable Funds and Fractional Reserve Banking models of banking (Mankiw 2016, pp. 71–6, 89–100), as if there’s nothing wrong with teaching factually incorrect models – as if the change from a model in which banks do not create money, to one in which they do, makes no difference to macroeconomics.” “The fact that banks create money when they lend has an enormous impact on macroeconomics, and models which pretend that banks don’t create money are utterly inaccurate models of capitalism.” | The New Economics | Economist | Australia | ||||
KMPG (2016) | KPMG (a financial advisory firm in Iceland) | “When commercial banks issue loans to customers, they create money by issuing deposits on the current account of the customer. This expands the balance sheet of the banks, over which central banks have limited control” | Money Issuance: Alternative Monetary Systems | Icelandic Prime Minister’s Office Report | 2016 | https://assets.kpmg/content/dam/kpmg/is/pdf/2016/09/KPMG-MoneyIssuance-2016.pdf | Economist | |
Kumhof, M., and X. Wang (2019) | Bank of England (Kumhof); University of Oxford (Wang) | “While at the microeconomic or corporate finance level the financial intermediaries of ILF models can be a very useful representation of non-bank financial institutions (NBFIs) that intermediate existing funds between different agents, at the macroeconomic level neither do NBFIs intermediate commodities - they intermediate financial balances, typically bank liabilities - nor do bank loans intermediate existing funds - they create new funds via loan extension.” | Banks, money and the zero lower bound | Bank of England Staff Working Paper No. 752 | 2019 | Economist | United Kingdom (UK) | |
Lainà, P. (2018) | University of Helsinki | “In the current monetary system most money is created by private banks. When banks make loans, they issue new deposits. That is, banks do not need prior deposits before they can grant loans. Bank deposits are simply accounting entries which are created simultaneously with bank loans” | Full-reserve banking: Separating money creation from bank lending | Dissertation: Faculty of Social Sciences of the University of Helsinki | 2018 | https://www.onsgeld.nu/archief/diversen/Laina_full_reserve_banking.pdf | Economist | |
Landau, J.-P, and A. Genais (2019) | Paris Institute of Political Studies | “In modern economies, money held by the general public takes the form of bank deposits. Bank deposits are money, which banks create by making new loans.” | Digital currencies: An exploration into technology and money | Report to M. Bruno Le Maire, Minister of Economy of France | 2019 | https://www.economie.gouv.fr/files/files/2019/ENG-synthese-ra-crypto-monnaies-180705.pdf | Economist | |
Levina, I. (2012) | University of Massachusetts, Amherst | "Banks are thus derived as specialized institutions with two main characteristics. First, they provide initial finance to start a circuit. … Second, banks provide initial finance by creating money ex nihilo, or lending out debts on themselves. … This take on banking has three important implications. First, money creation is independent of the multiplier process which is merely a multiplication mechanism, but not the origin and the simplest form of money creation. Second, for the circuitists, there is no pool of pre-existing deposits for the banking sector as a whole, therefore, banks as a group are not intermediaries. … Third, this ability to create money is a source of banks’ power.” | The Sources of Financial Profit: A Theoretical and Empirical Investigation of the Transformation of Banking in the US Investigation of the Transformation of Banking in the US | PHD Dissertation for the University of Massachusetts, Amherst | 2012 | https://scholarworks.umass.edu/cgi/viewcontent.cgi?article=1617&context=open_access_dissertations | Economist | USA |
Lietaer, B. (1997) | Money is created when banks lend it into existence. When a bank provides you with a $100,000 mortgage, it creates only the principal, which you spend and which then circulates in the economy. The bank expects you to pay back $200,000 over the next 20 years, but it doesn't create the second $100,000 - the interest. Instead, the bank sends you out into the tough world to battle against everybody else to bring back the second $100,000. | Beyond Greed and Scarcity: Interview on book, The Future of Money: Beyond Greed and Scarcity | YES!: A journal of positive futures | 1997 | https://library.uniteddiversity.coop/Money_and_Economics/Bernard_Lietaer/Interview_Yes!.pdf | Economist | ||
Lietaer, B., C. Arnsperger, S. Goerner and S. Brunnhuber (2012) | The Club of Rome | “The ‘official story’ is that governments, just like any household, must raise the money needed to pay for their activities. This is done either through income (by taxation) or through debt (by issuing bonds). In this story, banks simply act as intermediaries collecting deposits and lending parts of that money to creditworthy individuals and institutions, including governments. However, since 1971, when fiat currency – that is, money created out of nothing – became universal, this story has been a complete fiction.” ; “We have a worldwide monetary monoculture in which the same type of exchange medium is put into circulation in every country: a single national currency created through bank debt. Such a monoculture tends to spawn a brittle and unsustainable system.” | Money and Sustainability: The Missing Link | Report for the Club of Rome | 2012 | https://www.amazon.com/Money-Sustainability-Missing-Bernard-Lietaer/dp/1908009772 | Economist | |
Lindner, F. (2015) | Macroeconomic Policy Institute (IMK), Germany | “The paper has shown that saving does not finance investment. No saving and abstention of consumption is needed for any lending to take place since lending and borrowing money are pure financial transactions that only affect gross financial assets and liabilities.” | Does Saving Increase the Supply of Credit? A Critique of Loanable Funds Theory | World Economic Review (Peer Reviewed) | 2015 | http://wer.worldeconomicsassociation.org/files/WEA-WER-4-Lindner.pdf | Economist | |
Mehrling, P. (2015) | Barnard College | ‘Banks make loans by creating deposits, expanding their balance sheets on both sides simultaneously. This process apparently offends common sense understanding of what it means to make a loan – I can only lend you a bicycle if I already possess a bicycle. Even more, it seems to go against a fundamental principle of elementary economics that ‘there ain’t no such thing as a free lunch’. Against this resistance, I insist that the essence of banking is a swap of IOUs.’ | Why is Money Difficult? | Perry Mehrling Blog | 2015 | https://sites.bu.edu/perry/2015/06/08/why-is-money-difficult/ | Economist | USA |
Murau, S. (2018) | Harvard University & Institute for Advanced Sustainability Studies (IASS) | “Money creation takes place when financial institutions, in exchange for a long-term IOU owed to them, create a short-term IOU that can be traded on secondary markets against commodities, services or other financial instruments. The most common example is when banks issue loans by creating deposits as credit money. The loan constitutes an asset of the bank, as it is a long-term IOU owed to the bank; the deposit, as a short-term IOU owed by the bank, is the bank’s liability.” | Offshore dollar creation and the emergence of the post-2008 International Monetary System | Institute for Advanced Sustainability Studies (IASS) Discussion Paper | 2018 | Economist | USA | |
Neveu, A. (2020) | James Madison University | “The exposition continues to discuss money creation with a focus on how banks create money through lending.” ; “To help students understand money creation and the role of central bankers and regulatory authorities, it might help to shift from the story that commercial banks are simply financial intermediaries lending out unused cash. A more realistic story of banks accounts for their profit-seeking nature and the ability to create money out of thin air. Newly-created money is then used to finance risky ventures, where the transaction takes place intertemporally, and there is always the possibility that the borrower fails to repay. This type of model can help our students improve their understanding of the relationship between financial markets and real variables.” | Reimagining the introductory material in teaching money creation and monetary policy | Journal of Economic Education (Peer Reviewed) | 2020 | Economist | USA | |
Calomiris, Charles and Stephen Haber (2014) | Columbia University Business School | A [bank] charter is not just a license… It also confers a set of valuable privileges, such as the right to create money that serves as a legal tender for the payment of public and/or private debts, the right to hold government deposits, and, of course, limited liability for its shareholders. | Fragile By Design: The Political Origins of Banking Crises and Scarce Credit | Economist | United States | |||
London School of Economics (Nobel Prize 1972) | But from the point of view of the bank, it has acquired the security without giving up any cash; the counterpart, in its balance-sheet, is an increase in its liabilities. There is expansion, from its point of view, on each side of its balance-sheet. But from the point of view of the rest of the economy, the bank has ‘created’ money. This is not to be denied. | Banks expand balance-sheet on both sides when making loans | Oxford: Clarendon Press | 1989 | Economist | |||
Group of 69 Signatories - Rethinking Economics (2019) | Rethinking Economics | “How is money created? … Commercial banks create the vast majority of money in circulation. Unlike other financial institutions, they create money when they extend loans to borrowers. In the process of extending a loan, banks do not move pre-existing funds from any other account but newly ‘invent’ the money by crediting the borrower’s account. Therefore, banks’ lending is constrained by borrowers’ demand, profitability considerations and financial regulations, not by pre-existing funds (i.e people’s savings) nor by central bank reserves. This reality is in line with the credit creation or endogenous money theory, which is absent from most current economics textbooks and teaching.” | Open Letter: Rethinking the Role of Banks in Economics Education | Web-published open letter | 2019 | Other Academic | ||
Feinig, J. (2022) | Binghamton University, State University of New York | “Banking is a form of monetary design in which legislatures place profit-oriented institutions at the center of the money creation process (see chapter 3). When today’s commercial banks extend loans, they create deposits: that is, the bank marks up a debtor’s account to the amount it advances.11 Banks decide who should, and who should not, get credit to mobilize resources.” | Moral Economies of Money: Politics and the Monetary Constitution of Society | Stanford University Press | 2022 | Other Academic | USA | |
Business School, China University of Political Science and Law, Beijing (Boyao); School of Systems Science, Beijing Normal University (Wang) | Money creation and destruction are the crucial function of banks in the economy… Money creation is realized by banks via lending to firms and households, bond purchases from the government, dividend payments to households, and interest payments to them all. On the other hand, money destruction is realized via repayments by firms and households, sales of bonds, redemption by the government, equity issuance to households, and interest receipts from them all. […] When the bank approves a loan application from a borrower, it records the loan as an asset on the balance sheet. Simultaneously, the bank credits the borrower's bank account with a deposit of the size of the loan. Then, we can see both the loans appearing on the asset side and an equal amount of the deposits appearing on the liability side. […] Bank lending simultaneously creates a loan and a matching deposit, thereby creating new money instead of transferring the deposits or the reserves issued by the central bank. | Money creation within the macroeconomy: An integrated model of banking | International Review of Financial Analysis (Peer Reviewed) | 2020 | https://www.sciencedirect.com/science/article/abs/pii/S1057521920301915 | Other Academic | China | |
Kravchuk, R. (2019) | Indiana University | “News flash: Banks don’t lend out deposits. They can’t. Deposits are a liability of the bank. They can’t lend out their liabilities any sooner than you or I can lend out our credit card debt. So, basically, they write up their assets and their liabilities by the same amount… So what has the bank done? They have a franchise from the federal government to create money when extending loans to credit-worthy customers whose projects they have blessed... As a consequence, now they found themselves $10 million short of reserves at the end of the two week accounting period. What do they do? They turn to the Fed and say ‘we are short reserves’. The Fed says, ‘No problem. Here are your ten million dollars worth of reserves.’ They do the same thing for banks when it comes time to purchase federal Treasury securities: ‘Here are the reserves you need in order to purchase these Treasuries and put them on your balance sheet.’ So through the backdoor the Federal Reserve is always financing Federal spending, especially net deficit spending. They [the Treasury] can’t directly place Treasury securities with the Fed but they might as well.” | The (MMT) perspective on modern governmental finance for monetarily-sovereign governments | Ostrom Workshop Colloquium Series | 2019 | Other Academic | United States | |
Ravn, I. (2015) | Aarhus University (Denmark) | “As such, money creation-through-bank-lending is an insight that deserves to be widely appreciated, not only by economists and finance and banking professionals, but also by the general public.” | Explaining money creation by commercial banks: Five analogies for public education | Real-World Economics Review (Peer Reviewed) | 2015 | Other Academic | ||
Benes, J., and M. Kumhof (2012) | International Monetary Fund | “… under the present system banks do not have to wait for depositors to appear and makes funds available before they can on-lend, or intermediate, those funds. Rather, they create their own funds, deposits, in the act of lending. This fact can be verified in the description of the money creation system in many central bank statements, and it is obvious to anyone who has lent money and created the resulting book entries.” | The Chicago Plan Revisited | International Monetary Fund (IMF) Working Paper | 2012 | https://www.imf.org/en/Publications/WP/Issues/2016/12/31/The-Chicago-Plan-Revisited-26178 | International Organization | |
Benes, J., M. Kumhof, and D. Laxton (2014) | International Monetary Fund | “What, therefore, is the correct model of bank lending? Most importantly, banks do not lend real savings that they receive beforehand from depositors. Rather, upon the approval of a loan application, a bank creates new journal entries consisting of a new asset (the loan granted) and a new deposit (the loan disbursed). The new deposit is not a real resource withdrawn from some other use, such as foregone consumption. Instead it is new financial purchasing power created along with the loan. New bank deposits are therefore not created by a process of saving but by a process of financing” | Financial crisis in DSGE models: A prototype model | International Monetary Fund (IMF) Working Paper | 2014 | International Organization | ||
Andrew Crockett (1979) | International Monetary Fund (IMF); Bank of England; Bank for International Settlements (BIS) | “Taking the banking system as a whole, the act of lending creates, as a direct consequence, deposits exactly equal to the amount of lending undertaken. Provided, therefore, banks all move forward in step, there appears to be no limit to the amount of bank money they can create. Even more than this, there would appear to be a basic instability in the banking system.” | Money: Policy, Theory and Institutions | Book, Money: Policy, Theory and Institutions | 1979 | https://www.amazon.com/Money-Theory-Institutions-Andrew-Crockett/dp/0177121262 | International Organization | UK |
Borio, C. (2012) | Bank for International Settlements (BIS) | ‘… the banking system does not simply transfer real resources, more or less efficiently, from one sector to another; it generates (nominal) purchasing power … Deposits are not endowment that precede loan formation; it is loans that create deposits’ | The financial cycle and macroeconomics: What have we learnt? | Bank for International Settlements (BIS) Working Paper Series, No. 395 | 2012 | International Organization | ||
Borio, C., and P. Disyatat (2011) | Bank for International Settlements (BIS), Bank of Thailand | “Deposits are not endowments that precede loan formation; it is loans that create deposits.” ; ‘Banks … create additional purchasing power in the form of deposits through the act of extending credit … Through the creation of deposits associated with credit expansion, banks can grant nominal purchasing power without reducing it for other agents in the economy … The banking system can … expand total nominal purchasing power’ | Global imbalances and the financial crisis: Link or no link? | Bank for International Settlements (BIS) Working Paper Series, No. 346 | 2011 | International Organization | ||
Gross, M., and C. Siebenbrunner (2019) | International Monetary Fund | "banks’ debt issuance means money creation, while centralized nonbank financial institutions’ and decentralized bond market intermediary lending does not” ; “banks create deposits and hence money ‘out of nothing’ upon the creation of loans.” ; “banks’ lending implies money creation, and hence is more elastic and bound only by regulatory requirements and demand.” | Money creation in fiat and digital currency systems | International Monetary Fund (IMF) Working Paper WP/19/285 | 2019 | International Organization | ||
Kumhof, M., and Z. Jakab (2016), | International Monetary Fund (Kumhof, Jakab), former Barclays banker (Kumhof) | “… banks fund new loans by creating new deposit money. In other words, whenever a new loan is made to a customer, the loan is disbursed by creating a new deposit of the same amount as the loan, and in the name of the same customer.” | The Truth about Banks: Banks create new money when they lend, which can trigger and amplify financial cycles | Finance & Development (International Monetary Fund, IMF) | 2015 | https://www.imf.org/external/pubs/ft/fandd/2016/03/kumhof.htm | International Organization | |
Singh, M., and P. Stella (2012) | International Monetary Fund (IMF) | ‘… banks are able to create liquid claims on themselves, namely money, which is the counterpart to the less liquid loans or credit’ | Money and collateral | International Monetary Fund (IMF) Working Paper No. 95 | 2012 | https://www.imf.org/en/Publications/WP/Issues/2016/12/31/Money-and-Collateral-25851 | International Organization | |
American Bankers Association | "In today’s economy, most money takes the form of bank deposits. Money—and therefore deposits—is created through the private credit allocation process, which is a critical driver of economic growth and prosperity." (2021 congressional testimony) ”Today, we use both public and private money. In developed economies, public money, which includes cash and accounts held directly at the Federal Reserve, makes up about 5% of money. The other 95% is private money—funds held as a liability of a private institution like a bank or credit union. Private money is important because it is created through productive financial intermediation by banks in the form of lending and hence represents expansion, and usually a multiplication, in real economic output.” (2022 congressional testimony) | Statement for the Record On Behalf of the American Bankers Association Before the Subcommittee on Economic Policy Of the Committee on Banking, Housing, and Urban Affairs, June 9, 2021 | Proceedings of the US Senate Subcommittee on Economic Policy of the Committee on Banking, Housing, and Urban Affairs | 2021 | Industry Association | USA | ||
Bank for International Settlements (2018) | Bank for International Settlements, Markets Committee | “In a two-tier banking system, income from issuing money (banknotes and deposits at commercial banks) partly accrues to commercial banks” | Central Bank Digital Currencies | Central Bank Digital Currencies | 2018 | Industry Association | ||
Borio, C., and P. Disyatat (2011) | Bank for International Settlements, Bank of Thailand | “Through the creation of deposits associated with credit expansion, banks can grant nominal purchasing power without reducing it for other agents in the economy.” | Global imbalances and the financial crisis: Link or no link? | Bank for International Settlements (BIS) Working Paper Series, No. 346 | 2011 | Industry Association | ||
Bossone, B. (2000) | World Bank | “Indeed, banks become special when their power is recognized to create money in the form of debt claims on themselves, which they lend out to borrowers and which the economy uses for payment. Banks create such new debts and promise to honor them from the moment borrowers draw on their loan accounts to issue payments.” ; “Banks create money as new loans generate deposits that are used to finance transactions until they re-flow to the banks as loans are repaid.” | What Makes Banks Special? | World Bank Policy Research Working Paper 2408 | 2000 | https://openknowledge.worldbank.org/bitstream/handle/10986/19815/multi_page.pdf | Industry Association | |
Bossone, B. and M. Costa (2018) | World Bank (Bossone, Costa); University of Palermo (Costa) | “After long being a tenet of post-Keynesian theories of money, even mainstream economics has finally recognized that commercial banks are not simple intermediaries of already existing money; they create their own money by issuing liabilities in the form of sight deposits.” | The “accounting view” of money: money as equity (Part II) | World Bank Blogs | 2018 | https://blogs.worldbank.org/allaboutfinance/accounting-view-money-money-equity-part-ii | Industry Association | |
Decker, F. and C.A.E. Goodhart (2018) | Centre for Economic Policy Research (Decker, Goodhart); The University of Sydney Law School (Decker); London School of Economics & Political Science Financial Markets Group (Goodhart) | “Central banks and commercial banks create new money when they grant loans or purchase assets and pay in their own notes or credit the amount as a sight deposit.” | Credit mechanics: A precursor to the current money supply debate | Centre for Economic Policy Research (CEPR) Discussion Paper Series | 2018 | http://eprints.lse.ac.uk/100017/1/Goodhart_credit_mechanics_vox.pdf | Industry Association | UK, Australia |
Disyatat, P. (2010) | Bank for International Settlements (BIS) | “More generally, quantitative constraints on bank lending should be de-emphasized. Even if one accepts the notion that deposits fall in response to tight policy, banks nowadays are able to easily access wholesale money markets to meet their funding liquidity needs. Importantly, since banks are able to create deposits that are the means by which the non-bank private sector achieves final settlement of transactions, the system as a whole can never be short of funds to finance additional loans. When a loan is granted, banks in the first instance create a new liability that is issued to the borrower. This can be in the form of deposits or a cheque drawn on the bank, which when redeemed, becomes deposits at another bank. A well functioning interbank market overcomes the asynchronous nature of loan and deposit creation across banks. Thus loans drive deposits rather than the other way around. This is the key feature the differentiates bank lending from non-bank credit. Capital market intermediation, like barter and commodity money or cash-based systems, requires that the creditor have on hand the means of payment to deliver to the debtor before the credit is extended. In modern financial systems, credit transaction between non-bank agents essentially involves the transfer of deposits. Bank lending, on the other hand, involves the creation of bank deposits that are themselves the means of payment. A bank can issue credit up to a certain multiple of its own capital, which is dictated either by regulation or market discipline. Within this constraint, the growth of bank lending is determined by the demand for and willingness of banks to extend loans. More generally, all that is required for new loans is that banks are able to obtain extra funding in the market. There is no quantitative constraint as such. Confusion sometimes arises when the flow of credit is tied to the stock of savings (wealth) when the appropriate focus should in fact be on the flow” | The bank lending channel revisited | Bank for International Settlements (BIS) Working Papers, No. 297 | 2010 | Industry Association | ||
Dyson, B., and G. Hodgson (2016) | Positive Money UK | “When a bank makes a loan, it creates new deposits for the borrower. But when a peer-to-peer lending firm makes a loan, it simply transfers pre-existing deposits from a saver to a borrower; no new money is created.” | Digital cash: Why central banks should start issuing electronic money | Positive Money Report | 2016 | Industry Association | ||
The Roosevelt Institute; The Public Bank Project | “Major money center banks are never ‘deposit constrained’ in terms of lending decisions. As is by now well established, the banking system in aggregate creates money (deposits) in the act of making loans. Loans create deposits; deposits do not, in aggregate, create new loans. However, what is true of the banking system in aggregate is not true for every individual bank. Smaller community banks, while technically able to issue loans in advance of receiving deposits, may have reasons for not doing so, as persistent net deficits on their accounts vis-à-vis all other banks can lead to funding problems in the form of lack of access to overnight sources of interbank credit on the interbank wholesale funding markets, and/or increased refinancing costs—i.e., to ‘rollover risk.’ The situation of the Municipal Bank, at least initially, would be akin to that of a smaller regional bank.” | Municipal Banking: An Overview | Roosevelt Institute Report | 2016 | https://rooseveltinstitute.org/wp-content/uploads/2020/07/RI-Municipal-Banking-Overview-201604-1.pdf | Industry Association | USA | |
Nangle, T. (2016) | Columbia Threadneedle Investments - Head of Multi-Asset Management EMEA | “Inside (bank) Money is imagined into existence by banks in the process of creating a loan. … Imagine that you go to your local high street bank for a loan. In granting the loan the bank creates a deposit in your account. This deposit is a liability on the bank’s balance sheet against which it holds an asset (a loan to you).” | How helicopter money works | Asset Allocation | 2016 | Industry Association | USA | |
Shirai, S. (2019) | Asian Development Bank Institute (ADBI) | “new bank deposits are created when commercial banks extend new loans to firms and individuals, which in turn deposit those proceeds and, thus, increase the size of bank deposits.” | Money and central bank digital currency | Asian Development Bank Institute (ADBI) Working Paper Series, No. 922 | 2019 | Industry Association | ||
Stellinga, B., J. de Hoog, van Riel, A. and de Vries, C. (2021) | The Netherlands Scientific Council for Government Policy (WRR) | “The proposal for an alternative system casts light on a fact that will surprise many people, including many bank employees: most of our money is not created by governments or central banks, but by commercial banks. Banks create new money when they grant loans; while money is destroyed when loans are repaid (we explain this in Chap. 2). This means that the creation of money in our current system is inextricably linked to the creation of debt. Money and debt are in many ways two sides of the same coin. That means strong growth in debt – of concern to many international institutions and economists – cannot be seen in isolation from growth in the money supply.” | Money and Debt: The Public Role of Banks | The Netherlands Scientific Council for Government Policy Research for Policy Series | 2021 | https://library.oapen.org/bitstream/handle/20.500.12657/50029/978-3-030-70250-2.pdf?sequence=1 | Industry Association | The Netherlands |
The Group of 30 | The Group of Thirty | “[I]n a world where a private bank’s liabilities are widely accepted as a medium of exchange, banks can and do create both credit and money. They do this by making loans, or purchasing some other asset, and simply writing up both sides of their balance sheet.” | Fundamentals of Central Banking: Lessons from the Crisis | G30 Report | 2015 | https://group30.org/images/uploads/publications/G30_FundamentalsCentralBanking.pdf | Industry Association | |
Van Dixhoorn, C. (2013) | Sustainable Finance Lab (The Netherlands) | “In the current system money is created by commercial banks in the process of credit creation and money is destroyed by repayments.” ; “Banks can first make a loan and later attract the required reserves or funding. The system as a whole creates its own funding. Banks have the prerogative of money creation in an endogenous process balancing supply and demand for credit.” | Full reserve banking: An analysis of four monetary reform plans | Sustainable Finance Lab (SFL) Report | 2013 | Industry Association | ||
Group of 33 United States Banking Scholars (2020) | United States Court of Appeals for the Second Circuit | “Banking often involves lending, but mere lending does not constitute banking. When a bank makes a loan, it posts a credit in the amount of the loan to the borrower’s deposit account. It need not have any cash on hand. By contrast, before a nonbank lender can lend, it must procure cash or its equivalent. Thus, while nonbank lenders ‘deal’ in money, ‘banks do not merely deal in but are actually a source of, money.’ This is a basic principle of economics.” | Brief of Thirty-Three Banking Law Scholars As Amici Curiae in Support of Appellee: Lacewell vs. Office of the Comptroller of the Currency - Case 19-4271, Document 50 | Amici Curiae Brief for US Court of Appeals for the Second Circuit | 2020 | https://justmoney.org/wp-content/uploads/2020/08/19-4271-Amicus-Brief-of-Banking-Law-Scholars.pdf | USA |
