Great article, Bill. Many thanks.
I believe the “Loans create deposits” headline may be easier for all to comprehend it right (eg John Ranlett, “Money and Banking: An Introduction to Analysis and Policy, ” Wiley, 1965) if we reverted to the language used in 1950s and 1960s era money and banking books that seemed to get. These publications, prior to the corruption by monetarist economists, distinguished between “Derived Deposits” and “Primary Deposits”. Therefore, loans create derived deposits, that are then drawn (or invested) into main deposits. Banking institutions usually do not watch for receipt of primary deposits before moneykey login they have been happy to make loans to credit worthy businesses.
Needless to say today we must also add that based upon the character of this deposit that is primarydemand/current account versus time, transactional versus non transactional, stable versus non-stable), this new obligation might (or may not) attract book needs and/or extra top quality fluid assets (HQLAs required from the Liquidity Coverage Ratio needs from Basel III). Not to mention the asset and liability creation needs to be in the constraints of both the brand new Basel III leverage ratio and money to risk weighted assets ratio. Consequently, the creation of build up sets in movement a complex and interactive management that is asset-liability-capital for every single bank.
I like your projects. ‘m just not used to this but i do believe I’m needs to put my mind around MMT. Continue reading