Il partito delle banche

[Vladimir Ilyich]

ILF Models: Deposits Come Before Loans

The most basic, and also the most naïve, objection to a critique of the ILF view is that, surely, when I make a cheque deposit in a bank, the bank will use that deposit to fund loans to other households or firms. In other words, the bank intermediates my savings. What else would it do with “my money”? This objection exhibits both a confusion of microeconomic with macroeconomic arguments, and a confusion about the principles of double-entry bookkeeping.

Figure 1 illustrates this with an example. In the four steps shown in that figure, a cheque with a value of 4 is deposited in Bank A, whose balance sheet is shown in the left column. But the deposited cheque, if it has any value, must be drawn on a deposit that already exists elsewhere in the banking system. In our example, it is drawn on Bank B, whose balance sheet is shown in the middle column.

The right column shows the consolidated banking system, which is for simplicity assumed to consist of just Banks A and B. Also for simplicity, banks are assumed to have no net worth, and to keep central bank reserves of 10% against their deposits, much more than they would keep in practice.

The confusion of microeconomic and macroeconomic arguments becomes immediately obvious by considering the balance sheet of the consolidated banking system rather than of Bank A. It is entirely unaffected by this transaction. Deposits have been moved within the banking system, but this does not mean that the banking system as a whole has any more aggregate deposits to “fund loans”. In a macroeconomic sense, this is clearly not what must be meant by the intermediation of savings.

But the fallacies go deeper than that. To begin, even Bank A does not have any additional funds to lend after it has received the deposit. At the moment the cheque is deposited, Bank A creates a new entry, the deposit, on the liabilities side of its balance sheet. But, by double-entry bookkeeping, there has to be a simultaneous matching entry elsewhere, which in this case is an accounts receivable entry on the asset side.

This entry represents the liability of Bank B to deliver central bank reserves corresponding to the value of the cheque (this step is not shown in Figure 1). In other words, the funds are lent as soon as they are received — to Bank B. Bank A therefore has no additional funds to lend following the deposit.15 The next step in Figure 1 is that Bank A sends the cheque for clearing, and clearing is settled using central bank reserves, with Bank B’s central bank reserves decreasing by 4 and Bank A’s reserves correspondingly increasing.

One could now try to argue that Bank A can lend these additional central bank reserves to non-banks. But this would be a very elementary mistake. Central bank reserves simply cannot be lent to non-banks under the present split-circulation system, they are exclusively used to make payments between banks.

However, it might be argued, Bank A now has more reserves than it needs to support its deposit base, so there will be more lending by Bank A, and thus also more lending in aggregate. Notice that now we are no longer discussing lending by the bank of the funds represented by the original cheque deposit, because this is impossible, we are rather discussing indirect effects.

But even this is incorrect. First, even if it was true that the additional reserves in Bank A cause it to lend more, Bank B faces the opposite situation, so it would lend less. We care about the aggregate outcome, which is unlikely to change because the overall quantity of reserves has not changed.

Second, if Bank A cannot lend central bank reserves, and if it cannot create deposits through lending (under the ILF view of banking), how exactly can it lend more?

Certainly not by attracting yet more deposits from Bank B, which will end up as yet more central bank reserves for Bank A, which cannot be lent. Bank A therefore, if it cannot create deposits through lending, has no ability to increase lending to non-banks after it receives the cheque deposit and the corresponding central bank reserves.

In the real world only fairly small settlement transactions in central bank reserves are typically required, because incoming and outgoing cheques approximately balance for Banks A and B. We nevertheless continue with our example.

Given that Bank A does not need the additional central bank reserves to support its deposits with central bank liquidity, and because it cannot lend central bank reserves to non-banks, what it will do in the normal course of business is to lend them back to Bank A by way of an interbank loan. This is illustrated in the third row of Figure 1.

Interbank loans are a way of reallocating central bank reserves to where they are most needed within the banking system. Once this transaction is complete, Bank A has therefore used the central bank reserves that came along with the additional deposit to make an interbank loan to Bank B.

The deposit never enabled (or encouraged) it to lend more to non-banks, its only options were a loan of central bank reserves to Bank B or higher holdings of central bank reserves, which cannot be lent to non-banks.

A claim that a cheque deposit represents or leads to the intermediation of loanable funds is therefore a fallacy based on microeconomic or partial equilibrium arguments. But a large number of macroeconomic models exist in which banks do intermediate loanable funds in a general equilibrium setting. What do they have in mind?

This is illustrated in Figure 2, which shows the story implicitly told by such models. Here we only need a single bank that represents the aggregate banking system. The story starts with the saver making a deposit. But we have just seen that this cannot be a cheque deposit.

It can also not be a cash deposit, for two reasons. First, cash is never “lent out”, in the sense of a pure exchange of assets, loan against cash, on the bank’s balance sheet. Cash can only be withdrawn against a pre-existing electronic deposit that has first been created in some other way.

That other way is the subject of our inquiry here. Second, cash represents an extremely small fraction of the overall stock of money in modern economies, and banking transactions would proceed in exactly the way they proceed today if cash no longer existed at all.

A model that would not be valid if this minor and non-constitutive element of our monetary system did not exist could therefore not be more than a theoretical exercise with no practical value.

It turns out that the only possible way to tell the story of ILF banks is that the saver makes a deposit of neither cheques nor cash but of goods. These goods must in turn have been accumulated through some combination of additional production of goods and foregone consumption of goods.

A quick examination of the budget constraints used in modern general equilibrium models of banking shows that this is indeed, and to our knowledge almost without exception, the implicit assumption.

It is very important to try to understand what this would mean in practice, and we do so in Figure 2 by way of a concrete example. In this figure an agent called Saver approaches the bank to deposit a specific good that he happens to own, in this example gravel. In return the bank records a new deposit for Saver.

At the moment of recording this deposit, by double-entry bookkeeping, the bank needs to record a matching entry elsewhere. This entry, on the asset side of its balance sheet, is an addition to its inventory of gravel. We now assume that an agent called Investor A17 has approached the bank for a loan for the purpose of buying a machine, and that the bank has considered his proposal and decided to approve the loan.

Continuing with our example, this loan must take the form of the bank exchanging the gravel against a loan contract with Investor A, in other words the loan is a portfolio swap on the asset side of the bank’s balance sheet.

Investor A drives away with gravel, and then negotiates a barter transaction with Investor B, whereby Investor B accepts the gravel in exchange for the new machine whose purchase Investor A wanted to finance.

The bank is left with a deposit by Saver, and a loan to Investor A. It has intermediated loanable funds, in this example in the concrete form of gravel. These funds were the prerequisite for bank lending, and therefore for the physical investment of Investor A.

This story is fundamentally non-monetary, as the original bank deposit represents a receipt for goods, the loan represents a claim by the bank for future delivery of goods, and the ultimate purpose of the loan transaction can only be satisfied through barter of goods against goods.

We are therefore left with a model where banks, who provide close to 100% of any modern economy’s monetary medium of exchange, are modeled as institutions of barter.18 Model economies that are constructed in this way are therefore entirely fictitious representations of reality, as such institutions simply do not exist.

[Vladimir Ilyich]

FMC Models: Loans Come Before Deposits

The FMC view of banks is illustrated in Figure 3. As in Figure 2, we only need a single bank that represents the aggregate banking system. This story does not start, but ends, with a saver making a deposit. It starts with a borrower, Investor A, approaching the bank for a loan - in the form of money, not goods.

If the bank considers the credit risk of Investor A acceptable, it will enter into a loan contract. When the loan is entered into the bank’s books as a new asset, a matching deposit is simultaneously entered as a new liability.

The bank has created new purchasing power, money, through lending. Both the loan and the deposit are in the name of Investor A, which means that this transaction involves no intermediation of loanable funds whatsoever.

Investor A now uses this new deposit to acquire a newly produced machine from Investor B, by transferring the new money in his account to the account of Investor B, in exchange for the machine. We assume for simplicity that Investor B leaves these funds as a deposit in the banking system. At this moment, Investor B becomes a saver.

But what we want to emphasise is that Investor B’s saving is a result, not a proximate cause, of the loan, and of the investment. As indicated in the passage from Schumpeter above, Investor B goes about his transaction with Investor A without any ex-ante intention of becoming a saver.

His only intention is to sell machines, and to accept payment for his machines. In a modern economy cheques or money orders drawn on bank accounts are not only acceptable legal tender, they are the dominant practical means of making such payments, and Investor B would not remain in business for long if he did not accept them.

But that means that he, or someone else to whom he might pass his deposit to make some business payments, has to end up being a new saver.

In many modern banking systems, loans to finance investment in the real economy have become a fairly small part of overall bank lending, with another part financing consumption, and a third and much larger part financing the exchange of existing real or financial assets between different agents (Hudson (2012)).

If Investor B sold a pre-existing machine to Investor A, then his new deposit does not represent aggregate saving at all, rather it represents a portfolio exchange of his existing real asset against a new bank deposit. The absence of saving does not however make the bank loan any less essential, as the reallocation of assets only becomes possible because the bank creates new purchasing power for the use of the purchaser of the real asset.

The final balance sheet of the banking system is shown at the bottom of Figure 3. We find that, ex-post, the identity of the borrower, Investor A, is different from that of the depositor, Investor B. But this is not because the bank has intermediated real loanable funds from B to A, it is because it has created new purchasing power, exclusively for A, that was later transferred to B through the clearing system.

As shown in the remainder of this paper, the mechanism through which this final balance sheet position is created is critically important, because the FMC and ILF mechanisms have very different macroeconomic implications.

Werner (2014a) shows empirically that the story told by Figure 3 is precisely what happens when a bank makes a new loan. He does so by tracing the entries created during the granting and disbursement of a new loan through a small bank’s financial accounts. In addition, Werner (2014b) shows, in the UK context, that what distinguishes banks from non-banks, and therefore allows them to do this, is that they are exempt from legal rules known as Client Money Rules.

These rules require non-banks to hold retail client monies in trust, or off-balance sheet, while banks are allowed to keep retail customer deposits on their own balance sheet. Depositors who deposit their money with a bank are therefore no longer the legal owners of this money, with the bank holding it in trust for them, but rather they are one of the general creditors of the bank.

This implies that when non-banks disburse a loan to their clients, they need to give up either cash or their own bank deposits, while when banks disburse a loan, they do so by reclassifying an “accounts payable” liability (their obligation to disburse the loan in return for having received the right to receive future payments of principal and interest) as a “customer deposit”.

[Vladimir Ilyich]

DM Models? New Deposits Lead to Reserve Creation, Not Vice Versa

The DM view was widely accepted in academic and policymaking circles between the 1930s and the late 1960s20, and therefore overlapped with the periods during which the FMC and ILF views dominated. In this section we cite leading policymakers and academics who have refuted the DM view, based on a combination of theoretical, institutional and empirical arguments.

The fact that the creation of broad monetary aggregates by banks comes prior to and in fact may (if commercial banks need more reserves) cause the creation of narrow monetary aggregates by the central bank is acknowledged in many descriptions of the money creation process by central banks and other policymaking authorities.

The oldest and clearest comes from Alan Holmes (1969), who at the time was vice president of the New York Federal Reserve: “In the real world, banks extend credit, creating deposits in the process, and look for the reserves later.” This is exactly the view put forward in this paper. Ulrich Bindseil (2004), at the time head of liquidity management at the European Central Bank: “It appears that with RPD [reserve position doctrine, i.e. the money multiplier theory] academic economists developed theories detached from reality, without resenting or even admitting this detachment.”

Charles Goodhart (2007), the UK’s preeminent monetary economist: “... as long as the Central Bank sets interest rates, as is the generality, the money stock is a dependent, endogenous variable.

This is exactly what the heterodox, Post-Keynesians ... have been correctly claiming for decades, and I have been in their party on this.” Borio and Disyatat (2009), in a Bank for International Settlements working paper: “In fact, the level of reserves hardly figures in banks’ lending decisions.

The amount of credit outstanding is determined by banks’ willingness to supply loans, based on perceived risk-return trade-offs and by the demand for those loans.” Disyatat (2010), again from the BIS: “This paper contends that the emphasis on policy-induced changes in deposits is misplaced. If anything, the process actually works in reverse, with loans driving deposits.

In particular, it is argued that the concept of the money multiplier is flawed and uninformative in terms of analyzing the dynamics of bank lending.” Carpenter and Demiralp (2010), in a Federal Reserve Board working paper: “While the institutional facts alone provide compelling support for our view, we also demonstrate empirically that the relationships implied by the money multiplier do not exist in the data ...

Changes in reserves are unrelated to changes in lending, and open market operations do not have a direct impact on lending. We conclude that the textbook treatment of money in the transmission mechanism can be rejected...”. William C. Dudley (2009), president of the New York Federal Reserve Bank: “... the Federal Reserve has committed itself to supply sufficient reserves to keep the fed funds rate at its target. If banks want to expand credit and that drives up the demand for reserves, the Fed automatically meets that demand in its conduct of monetary policy.” European Central Bank (2012), May 2012 Monthly Bulletin (emphasis added): “The occurrence of significant excess central bank liquidity does not, in itself, necessarily imply an accelerated expansion of ... credit to the private sector.

If credit institutions were constrained in their capacity to lend by their holdings of central bank reserves, then the easing of this constraint would result mechanically in an increase in the supply of credit.

The Eurosystem, however, ... always provides the banking system with the liquidity required to meet the aggregate reserve requirement. In fact, the ECB’s reserve requirements are backward-looking, i.e. they depend on the stock of deposits (and other liabilities of credit institutions) subject to reserve requirements as it stood in the previous period, and thus after banks have extended the credit demanded by their customers.”

Finally, academic critiques of the deposit multiplier model also exist (Kydland and Prescott (1990), Brunner and Meltzer (1990), Lombra (1992)), although recently this issue has received much less attention due to the disappearance of monetary aggregates from modern monetary models.

[Conte Oliver]

https://jrc.princeton.edu/sites/g/fi...f-boewp529.pdf



Ma tu ne sai certamente di più di questi due ignorantoni, giusto?

no, questi sono competenti, sei tu che, senza offesa, non sai nulla di come funziona e non hai capito cosa vuol dire quel paper

quando una banca accende un prestito, la moneta è versata nel conto corrente del ricevente,che li metterà subito in circolo,comprando una casa o altro; chi riceve quei soldi, li mette in una banca la quale, al netto della riserva frazionaria li presta e li rimette in circolo e il giro riparte

per cui, dopo il primo passaggio di un mutuo che vale 100, avrai in circolo moneta per 195, creando dal nulla 95

basta ora con questa colossale scemenza che una banca presta moneta che non ha

[Vladimir Ilyich]

no, questi sono competenti, sei tu che, senza offesa, non sai nulla di come funziona e non hai capito cosa vuol dire quel paper

quando una banca accende un prestito, la moneta è versata nel conto corrente del ricevente,che li metterà subito in circolo,comprando una casa o altro; chi riceve quei soldi, li mette in una banca la quale, al netto della riserva frazionaria li presta e li rimette in circolo e il giro riparte

per cui, dopo il primo passaggio di un mutuo che vale 100, avrai in circolo moneta per 195, creando dal nulla 95

basta ora con questa colossale scemenza che una banca presta moneta che non ha

Forse non comprendi bene l’inglese allora.

Gli articoli da me postati affermano con la massima chiarezza che il denaro che verrà prestato non preesiste alla stipula del contratto di prestito, ma viene in esistenza solo grazie a tale contratto - la garanzia essendo l’impegno del debitore di rimborsare il debito alle scadenze prefissate.

Il problema di cui si discute non é cosa avviene della moneta costituente il prestito dopo che il prestito viene erogato.

La questione é: tale moneta preesiste o no? La risposta é chiarissima: no.

Wener lo dimostra attraverso la lettura dei movimenti contabili che prevedono e seguono l’erogazione di un mutuo.

A parziale discolpa di chi si incaponisce a negare questo concetto, il fatto che accettarlo significa mettere in dubbio una serie di convinzioni che siamo stati abituati a credere da sempre.

[Vladimir Ilyich]

Ultimo elemento: il concetto di riserva frazionaria come da te esposto non é quello reale. Secondo gli studi da me citati, la sola cosa che una banca deve fare é avere sul suo conto in banca centrale la riserva obbligatoria necessaria.

Se ha concesso 100 milioni di prestito, deve avere un milione nel conto di riserva.

É tutto.

Se ne vuole prestare altri cento, deve mettere un altro milione nel conto di riserva. Al limite se li fa prestare sul circuito interbancario, e poi compensa.

É chiaro che le banche prestano - o almeno dovrebbero prestare - avendo ben presente la solvibilità, le garanzie e l’affidabilità dei suoi clienti.

[Vladimir Ilyich]

IMF, mica la Cunial:

https://www.imf.org/external/pubs/ft.../03/kumhof.htm

In modern neoclassical intermediation of loanable funds theories, banks are seen as intermediating real savings. Lending, in this narrative, starts with banks collecting deposits of previously saved real resources (perishable consumer goods, consumer durables, machines and equipment, etc.) from savers and ends with the lending of those same real resources to borrowers. But such institutions simply do not exist in the real world. There are no loanable funds of real resources that bankers can collect and then lend out. Banks do of course collect checks or similar financial instruments, but because such instruments—to have any value—must be drawn on funds from elsewhere in the financial system, they cannot be deposits of new funds from outside the financial system. New funds are produced only with new bank loans (or when banks purchase additional financial or real assets), through book entries made by keystrokes on the banker’s keyboard at the time of disbursement. This means that the funds do not exist before the loan and that they are in the form of electronic entries—or, historically, paper ledger entries—rather than real resources.­

[Conte Oliver]

Forse non comprendi bene l’inglese allora.

Gli articoli da me postati affermano con la massima chiarezza che il denaro che verrà prestato non preesiste alla stipula del contratto di prestito, ma viene in esistenza solo grazie a tale contratto - la garanzia essendo l’impegno del debitore di rimborsare il debito alle scadenze prefissate.

chiunque sostiene questo è un ignorante che non sa nulla di nulla

portami i passaggi dove lo dice, nessuna persona competente scrive una castroneria cosi grossa

Il problema di cui si discute non é cosa avviene della moneta costituente il prestito dopo che il prestito viene erogato.

La questione é: tale moneta preesiste o no? La risposta é chiarissima: no.

chiunque sostiene questo è un ignorante senza speranza

ho un passivo di 100? tolgo le riserve di legge e arrivo a 90,che è il massimo che posso prestare

Wener lo dimostra attraverso la lettura dei movimenti contabili che prevedono e seguono l’erogazione di un mutuo.

Werner ha solo dimostrato che che ha acceso un mutuo e il passivo della banca non è cambiato; cioè il nulla di nulla

A parziale discolpa di chi si incaponisce a negare questo concetto, il fatto che accettarlo significa mettere in dubbio una serie di convinzioni che siamo stati abituati a credere da sempre.

IL sistema di banche sotto una BC esiste da più di 100 anni e come funziona è chiarissimo;non saranno certo dei complottisti a spiegarci che in realtà le cose son diverse

[Vladimir Ilyich]

Ibidem

Bank financing of investment projects does not require prior saving, but the creation of new purchasing power so that investors can buy new plants and equipment. Once purchases have been made and sellers (or those farther down the chain of transactions) deposit the money, they become savers in the national accounts statistics, but this saving is an accounting consequence—not an economic cause—of lending and investment

[Vladimir Ilyich]

chiunque sostiene questo è un ignorante che non sa nulla di nulla

portami i passaggi dove lo dice, nessuna persona competente scrive una castroneria cosi grossa


chiunque sostiene questo è un ignorante senza speranza

“L’ignorante senza speranza” sono il fondo monetario internazionale e la banca d’Inghilterra:

https://www.imf.org/external/pubs/ft.../03/kumhof.htm

This means that the funds do not exist before the loan

Ma tu ne sai certamente più di loro.