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Current Scholarship
Banks are not intermediaries of loanable funds – facts, theory and evidence

Authors: Zoltan Jakab and Michael Kumhof

In the loanable funds model, banks are modelled as resource-trading intermediaries that receive deposits of physical resources from savers before lending them to borrowers. In the financing model, banks are modelled as financial intermediaries whose loans are funded by ex-nihilo creation of ledger-entry deposits that facilitate payments among nonbanks. The financing model predicts larger and faster changes in bank lending and greater real effects of financial shocks.
More Current Scholarship
Banks are not intermediaries of loanable funds – facts, theory and evidence