TY  - UNPD
A1  - Gersbach, Hans
A1  - Zelzner, Sebastian
T1  - Why bank money creation?
T2  - Center for Financial Studies (Frankfurt am Main): CFS working paper series ; No. 678
N2  - We provide a rationale for bank money creation in our current monetary system by investigating its merits over a system with banks as intermediaries of loanable funds. The latter system could result when CBDCs are introduced. In the loanable funds system, households limit banks’ leverage ratios when providing deposits to make sure they have enough “skin in the game” to opt for loan monitoring. When there is unobservable heterogeneity among banks with regard to their (opportunity) costs from monitoring, aggregate lending to bank-dependent firms is inefficiently low. A monetary system with bank money creation alleviates this problem, as banks can initiate lending by creating bank deposits without relying on household funding. With a suitable regulatory leverage constraint, the gains from higher lending by banks with a high repayment pledgeability outweigh losses from banks which are less diligent in monitoring. Bank-risk assessments, combined with appropriate risk-sensitive capital requirements, can reduce or even eliminate such losses.
T3  - CFS working paper series - 678 
KW  - monetary system
KW  - banking
KW  - money creation
KW  - loanable funds
KW  - capital requirements
KW  - leverage constraint
KW  - asymmetric information
KW  - moral hazar
KW  - CBDC
Y1  - 2022
UR  - http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/63417
UR  - https://nbn-resolving.org/urn:nbn:de:hebis:30:3-634174
UR  - https://ssrn.com/abstract=4095335
IS  - This version: April 20, 2022
PB  - Center for Financial Studies
CY  - Frankfurt, M.
ER  -