Brownbag Seminars: Bank Liquidity, Deposits, and Lending

Abstract: This paper addresses the questions: Can an individual bank create money? Are there liquidity constraints on lending? What do these depend on? There are two views on banks’ money creation (Werner, 2016). According to the fractional reserve theory (e.g., Samuelson & Nordhaus, 2010), banks on the aggregate create money in a chain of depositing, lending, redepositing. According to the credit creation theory (e.g., CORE Econ), banks can create money individually by lending. I try to search for answers using a USA quarterly bank panel data between 1994-2021.