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    Bank of Finland, Rauhankatu 19 B, Helsinki

Michael Kumhof (Bank of England): Banks are not intermediaries of loanable funds – and why this matters


In the intermediation of loanable funds model of banking, banks accept deposits of pre-existing real resources from savers and then lend them to borrowers. In the real world, banks provide financing through money creation. That is they create deposits of new money through lending, and in doing so are mainly constrained by profitability and solvency considerations. This paper contrasts simple intermediation and financing models of banking. Compared to otherwise identical intermediation models, and following identical shocks, financing models predict changes in bank lending that are far larger, happen much faster, and have much greater effects on the real economy.


Research seminars organised by the Bank of Finland's research unit are held on Thursdays at 10:30–12:00 in Rauhankatu 19, 3rd floor big meeting room (unless indicated otherwise). Seminars are held in English.

Research seminars are open to all economists (unless indicated otherwise). Please register in advance at research(at)bof.fi by noon of the preceding day. Visitors will be escorted from Rauhankatu 19 B (Kirjasto/Library) entrance to the seminar room 10 minutes before the seminar.