by Steve Keen on MMT [embedded content] 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 … From the perspective of banks, the creation of money is limited by the need for individual banks to lend profitably and also by micro and macroprudential regulations … The central bank influences the money and credit creation process in normal times through its interest rate policy, which affects the financing and portfolio decisions of banks and non-banks through various transmission channels … What the stylised example of the creation of money shows particularly clearly is that a bank can grant loans without any prior inflows of customer deposits. In fact, book money is
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Steve Keen on MMT
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 … From the perspective of banks, the creation of money is limited by the need for individual banks to lend profitably and also by micro and macroprudential regulations … The central bank influences the money and credit creation process in normal times through its interest rate policy, which affects the financing and portfolio decisions of banks and non-banks through various transmission channels …
What the stylised example of the creation of money shows particularly clearly is that 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.