On the Nature of Banks. (15th March 2019)

• Record Type: Journal Article
• Authors: Angeles, Luis
• Is Part Of: Kyklos. Volume 72:Number 3(2019:Aug.)
• Page Start: 381
• Page End: 399
• Publication Date: 2019-03-15
• Subjects: Social sciences -- Periodicals; 300
• DOI: 10.1111/kykl.12204
• Languages: English
• ISSNs: 0023-5962

Abstract

Summary: Two views exist regarding the nature of the banking business. The dominant view defines banks as financial intermediaries – institutions in the business of transferring money from savers to borrowers. An alternative view advances that banks finance borrowers via money creation. I explain the differences between these two views and argue for the superiority of the latter one as a description of modern banking. I discuss the implications for economic analysis and explain how the connection between bank lending and money creation helps us understand the effects of banking on economic activity.