Endogenous Money in the Age of Financial Liberalization

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in AbstractThe paper reports results that show a much weakened statistical relationship between total bank credit, total deposits and the broad money supply for the period after 1995 for the US, where no statistical causation can be discerned in either direction. This has been the result of the changing nature of the credit creation process where banks have acquired almost total independence from required reserves and core deposits in extending credit, and even an ability to circumvent the constraint posed by capital requirements through asset securitization, giving rise to an explosive increase in nonbank intermediation. As a result, the expansion of bank credit did not result in a commensurate increase of bank deposits because financial intermediation spilled over to nondepository institutions, and with the growing importance of nonbank deposits in M3, broad money supply became broader than banks' total deposits. JEL Code: B22, E12, E51

Double Movement, Globalization, and the Crisis

“…They used to have more than 50 percent of all financial assets during the 1960s, but this rate started to decline after the 1980s and fell to less than 25 percent by the early 2000s. As a direct consequence of these developments, mutual funds and retirement funds increased their share in this era (Özgür and Ertürk : 6).…”

“…These activities are known as “originate and distribute” (O&D) models, which become an important aspect of banking in the last decade (Borio : 4). The revenues from such nontraditional activities increased throughout the 1990s, reaching more than 50 percent of all bank revenues after 2000 (Özgür and Ertürk : 7).…”