It’s been over ten years since the Bank of England published Money creation in the modern economy, yet despite that, I run into people daily parroting untruths about how banking works. As part of the update to the UK Accounting Model, we will enhance the banking chapter to cover how lending institutions work and highlight some of the intriguing artefacts that a proper understanding reveals....
New Wayland
7 comments:
“ As we know, loans create deposits. A loan of £100 creates £100 of deposits.”
It’s not that simple, the bank has to have Capital/retained earnings in regulatory proportion to the new total of risk assets created by the loan…
“If additional capital is available to create a new loan, then the bank can issuance a new loan asset that creates new deposit liability…”
iow the MMT “loans create deposits!” figure of speech is not fully descriptive…
“ you decide to hold a deposit of £100, living off the interest it generates. In that case, a corresponding £100 loan has to exist permanently somewhere in the system to balance that deposit.”
This is obviously not true as in US right now deposits are 18T and total loans and leases are 12T ..,
Neil, stop trying to dumb it down for these MMT Art degree morons,,,
It is that simple. If the deposits are 'shares' in a building society sense, then the y are 'regulatory capital'. Loans create deposits creates capital. Capital has *zero* control function.
The balance sheets balance. Therefore you're missing some loans on the asset side.
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