Want to create an interactive transcript for this episode?
Podcast: Faculti
Episode: Bank of England Special: Banks are not intermediaries of loanable funds
Description: Part of our Bank of England Partnership: In the intermediation of loanable funds model of banking, banks accept deposits of pre-existing real resources from savers and then lend them to borrowers. In the real world, banks provide financing through money creation. That is they create deposits of new money through lending, and in doing so are mainly constrained by profitability and solvency considerations. Michael Kumhof contrasts simple intermediation and financing models of banking. Compared to otherwise identical intermediation models, and following identical shocks, financing models predict changes in bank lending that are far larger, happen much faster, and have m...