Brian Romanchuk — Primer: What Limits Bank Lending?

The unfortunate fact that bank deposits are considered money has one side effect: our mysticism about money extends towards banking. The apparent ability of banks to "create money out of thin air" seems unfair, and this leads to questions about what limits their ability to lend. The answer is a lot simpler than one might suspect. For any other business (with the possible exception of the resource industry), output is largely constrained by their ability to find customers that they can sell their product to. The business of banks is lending. By analogy, the ability to find customers that they can profitably lend to limits their growth....

Bond Economics
Primer: What Limits Bank Lending?
Brian Romanchuk

Winterspeak — The Housing Bubble involved banks

Where Amir Sufi and Atif Mian go wrong in their explanation of the different economic consequences of the dot-com bubble and the housing bubble,

In general, economics treats money as an "illusion" in that it facilitates the trade and exchange of real goods and services, but fundamentally does not impact or distort that exchange (at least to no great degree). A rose is a rose is a rose, and therefore a good is a good is a good regardless of whether it's prices in dollars or shekels. Therefore, money in general and banks in particular do not play a central role in macro monetary models, which instead focus on things like time preference, consumer expectations, etc. 

In reality, money, or more particularly credit, plays a central role in the economy because of how bank lending works. When banks lend, they lever up their balance sheet, and therefore create money out of "thin air", constrained only by capital requirements on the supply side, and the number of qualified borrowers on the demand side.…

These two $6T are not comparable. In the dot-com bubble, the loss wiped out venture accounts and household wealth in brokerage accounts, but neither was enabling additional lending (and therefore money supply). In the housing bust, $6T of bank capital (which collateralized the loans) was propping up an additional $120T or so (at a 5% capital requirements ratio) of money supply, so the impact on the economy was over an order of magnitude greater.…

Winterspeak.com
The Housing Bubble involved banks
Winterspeak

Merijn Knibbe — A Minskyian interpretation of endogenous money creation: central banks don’t always rule the roost

The Bank of England has published a paper which states that 97% of all money is created by private banks, institutions which, when it comes to money creation, to an extent can go their own way. But Nick Rowe argues that this is theory: banks will actually have to go down the road laid out by the central bank as market forces will prevent the banks to create more ‘official’ money than the GDP economy needs at any level of the central bank interest rate. Nick Rowe is not entirely right. During the last two or three decades the larger part of money was not created because of GDP-transactions related lending but by mortgage lending. As house related lending and borrowing have increasingly become activities on a kind of asset market, speculative and Ponzi borrowing has become increasingly important on this market which means that the GDP-interest rate is not that important when it comes to restraining lending....

Banks create money. For decades, a very large part of this money was created by mortgage lending. As the central bank does not target house prices or mortgage lending and as the housing market was largely uncoupled from the GDP economy this means that the central banks did not control money creation. Or the increase of debt. Money is endogenous. But the central bank sometimes isn’t.

Real-World Economics Review Blog
A Minskyian interpretation of endogenous money creation: central banks don’t always rule the roost
Merijn Knibbe

Paul Sheard — Repeat After Me: Banks Cannot And Do Not "Lend Out" Reserves

"Although the "money multiplier" view of central banking and credit creation is the dominant one, largely I would posit because its pedagogical attractiveness makes it a "dominant meme," other schools of thought have long existed in economics and have come to the fore more recently in the guise of "modern monetary theory (MMT)." See, for instance, Wynne Godley and Marc Lavoie, 2007: Monetary Economics: An Integrated Approach to Credit, Money, Income, Production and Wealth (Palgrave Macmillan); L. Randall Wray, 1998: Understanding Modern Money: The Key to Full Employment and Price Stability (Edgar Elgar); L. Randall Wray, 2012: Modern Monetary Theory: A Primer on Macroeconomics for Sovereign Monetary Systems (Palgrave Macmillan)". — endnotes, p. 12

Standard and Poor's — Ratings Direct
Repeat After Me: Banks Cannot And Do Not "Lend Out" Reserves
Paul Sheard | Chief Global Economist and Head of Global Economics and Research, New York
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