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Publicly Available Published by De Gruyter July 5, 2018

Banking, Money and Credit: A Systemic Perspective

  • Yuri Biondi EMAIL logo

Abstract

Contemporaneous banking theories appear to understand financial institutions as intermediaries, relegating bank money creation through money multiplication outside the core of banking activity. This article takes a different systemic perspective, pointing to the dynamic and collective features that generate a banking system within and across financial institutions. Classic features such as bank credit creation, as well as classic issues such as bank runs, are reconsidered under the notion of a ‘banking system’ requiring coordination over time and circumstances.

Our conceptual framework develops a heuristic model of the basic mechanisms on which bank money creation lays upon. This model disentangles the link between functional and institutional dimensions of the money system, aiming to include minimal institutions in economic theory and economic analysis of money. These basic mechanisms include: monetary financial institutions (bank entities) issue claims which function as money; they facilitate payments across agents in the economy over time and space; they increase the money base through credit creation; they hold fractional reserves and lend to each other. Ongoing bank activity involves cash and non-cash (accrual) processes occurring within each bank entity and across them. Each bank keeps currency money in bank deposits on behalf of other agents. But the bank activity is further characterised by the capacity or privilege to use these deposits, although the latter remain available for payment and redemption at will and at par. Moreover, the bank can create deposit by granting a loan to, or buy a security from a borrower. This bank capacity or privilege involves money generation that enables the bank credit manufacturing process. In this way, all the banks become interdependent on the flow of payments that are performed across them, generating the ‘banking system’. Since each bank is structurally unbalanced due to money generation, inter-bank coordination is required to maintain the banking system in operation over time and circumstances. Both inter-bank clearing and credit arrangements provide this coordination at the inter-bank level, which is effectuated through central bank intervention, clearing houses and the money market.

From this systemic perspective, ‘systemic risk’ and ‘macro-prudential’ management and regulation are new labels for recurrent concerns of systemic coordination. A careful combination of design and policy is therefore required to reach coordination in view to prevent or respond to local and systemic crises. Drawing upon this conceptual framework, this article develops institutional economic analysis and implications for shadow banking; systemic risk, interdependency and interconnectedness; the relationship between money and credit and the real economy; and the systemic consistency between functions and institutions in monetary regimes.

JEL Classification: E42; E51; E58; G21; G28; M41

Table of Contents

  1. Introduction

  2. A functional representation of the banking system through three layered levels

    1. First level – banking as the ledger keeping of economy and society

    2. Second level – banking as the treasury management of economy and society

    3. Third level – banking as manufacturing of credit in economy and society

    4. Banking as an entity (going concern)

      1. Bank financial process (treasury department)

      2. Bank economic process (bank credit department)

      3. The real-financial nexus

  3. The public-private partnership: currency issuance and central banking

  4. The money market

  5. Shadow banking

  6. Money aggregates dynamics: systemic implications

  7. Thoughts for banking system regulation

  8. Concluding remarks

  9. Acknowledgements

  10. References

The Money Problem. Perspectives on Money, Banking and Financial Regulation

  1. “Banking, Money and Credit: A Systemic Perspective” by Yuri Biondi, https://doi.org/10.1515/ael-2017-0047

  2. “A Simple Fix for a Complex Problem? Comments on Morgan Ricks, The Money Problem: Rethinking Financial Regulation” by Margaret M. Blair, https://doi.org/10.1515/ael-2017-0042

  3. “Morgan Ricks: “The Money Problem: Rethinking Financial Regulation”” by Philippe Moutot, https://doi.org/10.1515/ael-2017-0029

  4. “Financial Stability and Money Creation: ” by Thorvald Grung Moe, https://doi.org/10.1515/ael-2018-0010

  5. “The Money Problem: A Rejoinder” by Morgan Ricks, https://doi.org/10.1515/ael-2018-0018

1 Introduction

Contemporaneous bank theories draw upon agency theory, contract theory and mechanism design to consider bank entities as firm-specific arrangements between bank management and depositors, focusing on intermediated monitoring. At the same time, financial economics has been developing a market-based theory of finance where banks come to be understood as portfolio managers quite analogous to non-bank investment funds and subject to perfect and efficient financial markets discipline (Black, 1970; Fama, 1970; Tobin, 1963). Drawing upon an agency theory approach, Calorimis and Kahn (1991) argue that bank entities rely on short-term debt funding as a deliberate strategy to constrain their own investment activities. This is expected to solve the agency problem in controlling bank management which may abscond with the bank assets. According to Diamond and Rajan (2001), a short-term funding structure is consistent with relationship lending to difficult, illiquid borrowers, which are monitored through the bank management’s specific selection skills. Drawing upon information asymmetry, Gorton and Pennacchi (1990) see bank entities as issuers of securities with very low default risk, making monitoring superfluous. Uninformed traders are then willing to hold these securities because they can avoid information gathering. As noticed by Admati and Hellwig (2013), these theories set incompatible views on creditors, respectively as bondholders or depositors: “one of creditors constantly on the watch for problems and the other of creditors trusting that banks are safe”. Taking an information asymmetry perspective under incomplete contracts, Diamond and Dybvig (1983) explain banking as financial intermediaries which provide a sort of consumption insurance arrangement for depositors, enabling the latter to be compensated for deposited asset illiquidity.

More fundamentally, these theories appear to sever the theoretical and heuristic connection between banking, credit and money. Banks are understood as intermediary agencies that obtain funds from deposits with one set of characteristics, and transform them into assets with another set of characteristics. This understanding may certainly point to some maturity transformation and liquidity provision mechanisms, but bank money creation through credit is not seen as an essential part of the core banking activity. The bank entity appears as a pure intermediary of loanable funds, either passing existing money from savers to borrowers, or acting as a mechanic link between central bank base money and the broader money aggregate that includes bank deposits (Werner, 2014a, 2014b).

These theories therefore neglect some essential facts concerning modern banking: monetary financial institutions issue claims which function as money; they facilitate payments among agents in the economy over time and space; they increase the money base through credit creation; they hold fractional reserves and lend to each other (Blair, 2013; Jakab & Kumhof, 2015; Ricks, 2015). Our approach takes a systemic perspective, building upon these featuring dimensions of banking. Our model considers bank activity process within each bank entity and across entities. Each bank keeps currency money in bank deposits on behalf of other people. But the bank activity is further characterised by the capacity or privilege to use these deposits, at the same time as their depositors, which keep using them for payment and redemption at will and at par. Moreover, the bank can create deposits by granting loans to (or buy a security issued by) some borrower. This bank capacity or privilege involves money generation that enables bank credit creation process. As a consequence, each and every bank generates money beyond its own money holdings. All the banks become therefore interdependent on the flow of payments that are performed across them, generating a ‘banking system’ (Amaduzzi, 1961; Caprara, 1946; Castellino, 1965; Saraceno, 1957).

This banking system requires specific coordination, within each bank and across them. Within each bank entity, two featuring processes are at work: (i) An economic process that creates bank money through credit, in order to generate income to the bank entity; and (ii) a financial process that rebalances cash inflows and outflows when they become due through time. Since each bank is structurally unbalanced due to money generation, an inter-bank coordination is required to maintain the banking system in operation over time and circumstances. Both inter-bank clearing and credit arrangements provide this coordination at the inter-bank level, which is effectuated through central bank intervention, clearing houses and the money market. From this perspective, our conceptual framework includes two collective dynamics: inter-agent interaction, and interaction between collective structures and individual agents. These structures follow the notion of ‘minimal institution’ introduced by Shubik (2011), Shubik and Smith (2016) and Goodhart et al. (2016), which aim to include institutions in economic theory and economic analysis of money.

Our institutional economic analysis is based upon the conceptual framework developed by Shubik (2011) and Biondi (2010), and inspired by Schumpeter’s theorising (Biondi, 2008). Accordingly, each entity involves two complementary processes, one cash-based, the other non-cash (accrual-) based. Accounting systems are designed and performed to deal with both processes. By combining these processes over space and time, every entity stands upon the economy ground-floor provided by property, bilateral contracts and cash holdings.

This frame of analysis allows developing a heuristic model of the basic mechanisms on which bank money creation lays upon. This model disentangles the specific role plaid by the bank entity through three successive layers or approximations. The banking system’s role in economy is then understood respectively as ledger keeping, treasury management, and manufacturing of money. This model paves the way to disentangle the link between functional and institutional dimensions of the money system, which Biondi and Zhou (2017) further study through dynamic systems analysis by simulation.

The rest of the article is organised as follows. The second section introduces our theoretical model through three layered approximations of the banking system focusing on the working of each bank entity in relation with the other ones. This section provides the functional model of the banking system that is applied to explore its further dimensions. In particular, the third section discusses the public private partnership which generally features the institutional structure of this banking dynamics. The fourth section discusses the role of the money market and the ways this market results in performing bank functions, contributing to the bank money generation process. The fifth section addresses features and concerns related to shadow banking. The sixth section develops some systemic implications of credit money and the money multiplication process. The seventh section provides some thoughts and implications for regulating the bank system. A summary of main argument and implications concludes.

2 A functional representation of the banking system through three layered levels

To understand the role of banking in the economy, the following theoretical analysis layers up three featuring dimensions (Table 1). They may be understood as successive approximations of the money dynamic system generated by the ongoing working of banking as a whole. The first layer sees banking as the ledger keeping of the economy. At this level, banks are custodians of currency money held on behalf of agents in the economy in view to protect holdings and facilitate payments across them over space. This corresponds to the institutional ruling that grants banking with the privilege of holding and aggregating deposits. The second layer builds upon this payments system to understand bank credit creation which leverages upon the currency money base through fractional reserve. This corresponds to the institutional ruling that enables banks to use the currency under custody, while the latter remains available to its holders, as well as to create deposits that are convertible in currency money. Governmental deposit insurance and reserve requirements point to this dimension of banking as treasury management of the economy. The third layer introduces the bank management intentional action which seeks for business opportunities in order to generate income to the bank entity under cost and risk controls. Equity capital requirements (including prudential reserves) and credit guidance point to this dimension of banking as manufacturing of money through bank credit creation.

Table 1:

Successive layered levels of the working of the banking system and related institutional instrumentalities.

Functional RegimeInstitutional Instrumentalities
Banking as ledger keepingAccounting Records
Deposit Protection
Banking as treasury managementCash Basis of Accounting (Flow of Funds)
Deposit Insurance
Liquidity Reserve Requirements
Lending of Last Resort
Banking as manufacturing of moneyAccruals Basis of Accounting
Equity Capital Requirements
Prudential Reserves Requirements
Credit Control (Guidance) Requirements

Although this articulation (Table 1) disentangles key functions and relate them to featuring institutional instrumentalities, monetary financial institutions are going concerns that deploy their working activities through time and space, seeking for evolving arrangements that combine the various functions. Bank business models and behaviours reshape the mutual relationship among those functions. Indeed bank economic organisation combines financial and economic processes involving the three layers of the money system (see Section 2.4 and Table 13 below).

2.1 First level – banking as the ledger keeping of economy and society

Let posit an economy where agents agree to employ one general means of payment – called currency money or cash - to settle transactions. In this first approximation (Table 2), the currency money is issued by a central monetary authority. All agents keep their currency money accounts with the central authority.[1] All the payments are immediately settled among agents. When an agent pays another agent, the amount is transferred from one agent’s account to the other agent’s account. Each agent is then constrained by its current cash holding, and so does the whole economy.

Table 2:

First level of banking – money issuance by central monetary authority.

Central Monetary Authority (Issue Department)
[Asset]Currency Money Issued: 1000
Central Monetary Authority (Credit Department)
Currency Money Issued: 1000Currency Money Holdings by agents: 1000

In this context, an emergent matter of interest concerns here the possiblity by central monetary authorities such as central banks to issue digital currencies and hold electronic deposits on behalf of the public (Sverige Riksbank 2017; Barrdear, J. and Kumhof, M. 2016; KPMG 2016). Interestingly, existing currencies in the form of coins and banknotes are already accounted for as liabilities of central banks (Table 2). They are recognised as functionally equivalent to central bank deposits. Their material form may be considered as transferable certificate for these liabilities. An upgrade to digital form would not involve therefore a substantial change in their economic function.

  

In fact, in order to facilitate transactions, some decentralised agencies may be and have been organised to manage currency money transactions. These monetary financial institutions situate between the central monetary authority and the agents. In this further specification (Table 3), the central monetary authority holds currency money on behalf of those banking institutions (so-called reserves or base money), while the banking institutions hold currency money on behalf of the agents.

Table 3:

First level of banking – money holding and ledger keeping by an illustrative monetary financial institution (bank A).

Central Monetary Authority (Credit Department)
Currency Money Issued: 1000Currency Money Holdings by Bank A: 300
Currency Money Holdings by Bank B: 500
Currency Money Holdings by Bank C: 200
Bank A
Currency Money Holdings (issued by the Central Monetary Authority): 300Currency Money Deposits by agents 300
Agents (Bank A Customers)
Currency Money Deposits (held by bank A): 300[Liabilities]

This intermediation by decentralised monetary institutions does not change the payments system that is in place in this miniature economy. These intermediary institutions act here as the ledger(s) of the economy, facilitating payments and transfers. Each institution keeps updating the agents’ accounts which are increased by currency money inflows and decreased by currency money outflows. In turn, this payments flow depends on and relates to the economic dynamic among the agents. They may then use money holdings to buy, pay and give to each other. In this context, the currency money function is to make agents capable to perform payments and settle transactions. Currency money holdings and flows reflect the power to pay or purchasing power held by each agent.

In this context, every bank holds the whole activity across customers in its balance sheet and it is deemed to fulfil its obligations as long as no customer is prevented from using the deposit. If monetary institutions ask to be paid for their payment services, this remuneration shall be taken out from the agent’s capacity to pay. This cost would constitute revenue to the monetary institution for banking services.

For sake of simplicity, we can imagine a stationary state where all agents keep making and receiving payments over time in a stochastically balanced dynamic. At the same time, the presence of intermediary institutions generates another inter-bank dynamic, since agents’ accounts are now split between several monetary financial institutions.

Each institution experiences a series of payment inflows and outflows related to each agent’s account. The sum of all these flows generates a specific dynamic at the level of the institution as a whole, as well as a specific inter-bank dynamic. Payments between agents can be settled among accounts held by the same institution, or across accounts held by different institutions. When the settlement occurs within the same bank, it does not modify the bank position relative to the other banks. When the settlement occurs across banks, it will generate a transfer between two or more banks (settlement arrangements being bilateral or multilateral). Each bank may then experience a series of currency money transfers from and toward the other banks that operate within the financial system. All these payments are immediately settled.

Regulation concerning deposit protection relates to this functional dimension of the banking system. This institutional rule assures depositors that their holdings are shielded against bank mismanagement of their accounts.

2.2 Second level – banking as the treasury management of economy and society

By the law of large numbers, each bank experiences that a considerable share of its currency money holdings does not change over time. Although agents keep performing payments, inflows and outflows tend to compensate each other, resulting in a relatively stable core that remains within the holding bank over time. This core may be understood as a functional basis for the bank lending activity. Therefore banks do not only keep currency money accounts on behalf of agents, but they may also perform specific credit operations which finance the ongoing economic activities run by agents. This specific banking activity operates under an institutional ruling that enables credit (Table 4). Through credit, agents are no longer constrained by current currency money holdings, but they can lend and borrow to each other. This involves postponing or anticipating payments, but also settling a payment by a promise to pay, instead of a currency money transfer. Here, money holdings and inflows further define each agent’s capacity to settle its debt obligations, defining money as means of debt settlement, that is, its redeeming or releasing power.

What happens at the level of the banking institution when credit is enabled?

The banking institution can now perform two distinctive operations somehow related to the same currency money holdings. On the one hand, the bank keeps holding them on behalf of the agents, performing currency money inflows and outflows on their behalf. On the other hand, the bank may create new deposits by granting loans to (acquiring securities from) borrowing agents. Bank credit generation involves then deposit creation. The bank is here leveraging upon currency money holdings by granting loans to borrowers.[2]

This banking regime is usually labelled ‘fractional reserve’ or ‘deposit creation’. Both notions tell the same story from a functional perspective. Money multiplication operates as follows. A bank creates a deposit when it grants a loan. The borrower can then transfer this amount, although the bank maintains the loan as an asset (as long as the credit is not reimbursed). At the same time, the loan granting does not undermine the capacity of depositors to use their holdings. Therefore, the bank has added additional money in the financial system through bank credit creation.

Table 4:

Second level of banking – credit granting and money-equivalent deposit creation by an illustrative monetary financial institution (bank A).

Bank A
Currency Money Holdings (issued by the Central Monetary Authority): 300Currency Money Deposits by agents 300
Loan to borrower: 100Deposit held by borrower: 100
Agents
Currency Money Deposits (held by banks): 300
Bank A Deposit: 100Loan from Bank A: 100

At the functional level, the deposit created by the bank to lend money, and the currency money deposit are equivalent.[3] Both can be employed by agents to perform payments. In this way, bank money has been added to the monetary base previously constituted only by the currency money issued by the central monetary authority. Although lending and borrowing operations can be performed by other collective agencies or individual agents, this money multiplying mechanism features the banking operation which is characterised by the capacity to hold money in deposit and use it at the same time. Banking is then operated through other people’s money and by creating bank money-equivalent means of payment. Banking is therefore unique in combining deposit-taking and deposit-creating through its credit generation process which involves money multiplication (or bank money creation). This uniqueness justifies banking licence for deposit-taking and credit-making, involving money creation.

When credit is enabled, another kind of lending-borrowing relation occurs at the inter-bank level (Table 5). As shown before, each bank faces a flow of payment transfers from and toward the accounts held by other banks. Each bank does then experience a series of potential settlements to be performed with the various banks that operate within the banking system. The banks may then decide to postpone settlement by transfer of currency money. When this postponement occurs, a credit position to be settled becomes lending to another bank, while a debit position becomes borrowing from another bank. An inter-bank loan mechanism appears, facilitating the ongoing banking activity. This mechanism constitutes an additional source of funding for the bank treasury department.

Table 5:

Second levels of banking (illustrative example) - interbank payment settlement with simultaneous interbank credit

Case (i): A payment is performed on behalf of two clients from Bank A (debtor) to Bank B (creditor). Simultaneously, Bank B grants a loan to Bank A for an equivalent amount, without sterilisation of the currency money transfer impact.[4]
Bank A
Currency Money Holdings (issued by the Central Monetary Authority): 300 – 50Currency Money Deposits by agents 300
Loan to borrower: 100Deposit held by borrower: 100–50
Deposit with Bank B: 50Loan from Bank B: 50
Bank B
Currency Money Holdings (issued by the Central Monetary Authority): 500 + 50Currency Money Deposits by agents: 500 + 50
Loan to Bank A: 50Deposit held by Bank A: 50
Case (ii): A payment is performed on behalf of two clients from Bank A (debtor) to Bank B (creditor). Simultaneously, Bank B grants a loan to Bank A for an equivalent amount, with sterilisation of the currency money transfer impact.[5]
Bank A
Currency Money Holdings (issued by the Central Monetary Authority): 300Currency Money Deposits by agents 300
Loan to borrower: 100Deposit held by borrower: 100–50
Loan from Bank B: 50
Bank B
Currency Money Holdings (issued by the Central Monetary Authority): 500Currency Money Deposits by agents: 500 + 50
Loan to Bank A: 50

How do these bank operations (credit creation and inter-bank lending) interact with the banking regime?

First of all, due to fractional reserve regime or deposit creation, banks are structurally dependent on the banking system to operate, since they lend out money that they do not own and in excess of money that they hold on behalf of agents (currency money deposits).[6]

A dynamic and collective dimension emerges therefore in the banking activity. Three illustrative examples may highlight this featuring dimension.

Imagine that the banker decides to give up the bank money, by granting a loan that cannot be repaid. The extra money that is generated is not expected to be reimbursed. At the same time, this potential loss may remain unrevealed because of the outstanding deposit mass. Indeed the money loss may remain hidden because a certain core of money holdings remains stable over time within the bank entity. This situation raises a moral hazard problem with bank management.

Imagine now that an unexpected number of customers decide to redeem their deposits. The bank may then become exposed, since it is structurally unable to repay all the deposit accounts at the same time (due to the money multiplication mechanism). This is the case of bank run, when rumours on the bank credit worthiness lead most depositors to withdraw their holdings at the same time. This panic contains a self-fulfilling mechanism, since the mass simultaneous deposit withdrawal makes the bank defaulting even though its ongoing banking activity (that is, its asset portfolio) would make it solvent through time. This situation raises a collective action problem with the ongoing bank activity, dependent on reciprocal expectations and exposed to market failure (Ricks, 2015, chapter two).

The third illustration concerns interbank credit coordination. Imagine that an unexpected number of creditor banks do simultaneously: ask to be repaid on their outstanding credit positions; stop rolling-over positions that become due; deny new credit agreements; redeem their deposit with the borrowing bank; or refute borrowing bank credit admittances as collateral or means of interbank settlement. The borrowing bank may then become exposed, since it is structurally dependent on interbank credit funding to maintain its banking activity over time. This is the case of flight to quality, when rumours on the borrowing bank credit worthiness lead most bank counterparties to withdraw their lending commitments at the same time. This commitment withdrawal contains another self-fulfilling mechanism and a systemic threat, which the interbank liquidity crisis of 2007–08 made apparent (Gorton, 2010).

Coordination within the banking system is required to cope with this dynamic and collective dimension of banking. This coordination need emerges not only within each bank entity (as the bank run case illustrates), but also across banks (interbank credit case). In its treasury management, each bank depends on (potentially all) the other concurrent banks connected within the same banking system, establishing fundamental interdependence links to each other. This coordination occurs then and establishes a collective layer that expresses itself through time. Its collective and dynamic dimension features and denotes the nature of the banking system.

Deposit insurance relates to this functional dimension of the banking system. This institutional rule assures depositors that their holdings are shielded against bank losses and bank insolvency, under certain terms and conditions.

Voluntary reserves and compulsory reserve requirements do also relate to this functional dimension of the banking system. Every bank has its own fractional reserve policy concerning its bank money creation for lending purpose. A minimal reserve rule may also be established and enforced by the central monetary authority. Both minimal reserve target rulings – by private or public ordering - aim to prevent excess lending on fractional reserve, while protecting the bank entity continuity against expected flow of redemptions.[7]

The central monetary authority may intervene to rescue the bank which is confronted with a bank run, acting as a lender of last resort. Borrowing from the central banking may then respond to that liquidity crisis. In fact, this liquidity provision (well-known as lender of last resort) remains exposed to the moral hazard problem which relates to bank solvency (dependent on sustainable lending process). In this context, the central monetary authority is further confronted with a novel situation. Banks do still hold issued currency on behalf of agents, but also generate additional bank money by creating loan and deposit for borrowers. Whenever a borrower wishes to redeem its deposit holding in currency (legal tender), the lending bank may seek to cover this request through its internal currency reserve, through a loan from another bank, or from the central monetary authority. This confirms the functional equivalence between the legal tender (currency money) and the money-equivalent bank deposit, since they can be converted into each other at request and at par.

2.3 Third level – banking as manufacturing of credit in economy and society

How does bank money creation intervene in the economic process of production and consumption?

Relative to the cash-in-advance settlement system (first layered level), the bank credit system introduces flexibility across space and time. On the one hand, banks economise on cash transfers by managing inter-bank transactions. On the other hand, banks enable agents to displace cash settlements through time and space.

From the borrower’s viewpoint, typical banking operations point to financing, discounting and refinancing.

Financing is perhaps the most well-known banking operation. The bank loan provides the borrower with money to pay for expenditure. Through it, the borrower may settle a payment (or a series of payments) for consumption or investment purposes. The bank reviews the borrower file to assess its capacity to repay the loan through time and circumstances. For example, a borrower obtains a loan to buy and own a house.

Discounting enables the borrower to receive money in exchange of (or guaranteed by) the transfer to the bank of a definite stream of future payments. Typical example is the discount of commercial paper, that is, an entitlement of commercial credit that the borrower holds as a creditor against another agent (the commercial debtor).

Refinancing consists in rolling over an existing financial position, obtaining new money over it. It may be asset- or liability-based. Asset-based refinancing consists in using that asset as collateral to obtain a loan. For example, the same borrower which has acquired a house financed by a loan obtains another loan based upon that house as collateral. Liability-based refinancing results in rolling over debt positions over time. When a debt position becomes due in its capital instalment, another debt position is taken to cover that instalment, with the same or another lender. The borrower is then able to maintain its debt position in place by paying only for interest charges, while successive cohorts of lenders keep refinancing (rolling over) its debt over time.

From the bank’s viewpoint, bank management leads the lending activity for the entire bank through time and circumstances. The bank activity is then managed at the level of the bank entity as a whole, involving its collective and dynamic dimensions. In particular its ongoing organisation requires recovering overhead costs and investments, while it incurs being exposed to credit risks and eventual losses. It may also involve a profit-seeking purpose.

Therefore, the bank seeks to generate income through the ongoing banking activity. This implies that lending – which is enabled by the bank capacity or privilege to generate money – will be oriented to generate net income to the bank entity. Possible losses would then depend not only on mismanagement, accidents or bank runs, but also by the very risk-taking strategy adopted by the bank in its lending activity. This income flow dimension – along with its possible profit-motive – adds an additional layer to the bank organisation.

As was the case for the treasury management dimension, credit manufacturing involves additional interdependency for the bank activity over time and space within every bank entity and across them. Credits granted by each and every bank may be interdependent and they do generate an additional series of cash flows to be managed by the bank treasury department. At the same time, this credit portfolio involves a series of payments that may generate profits to the bank but also incur losses when some borrower fails to reimburse its loan.

Imagine that a loan is continuously renewed over time. This implies that that borrower can keep employing it by only paying interest charges. An additional dynamically stable source of funding is then available to the borrowing entity activity. At the same time, this may make the bank credit department prone to excess risk-taking, as long as the capital commitment (separated from the interest charge flow) is continuously renewed over time (Biondi, 2013).

In sum, credit manufacturing implies another systemic coordination across credit institutions. When every bank entity grants a loan or buys a security against bank deposit creation, this newly created flow of money (equivalents) adds to the current money aggregates in economy and society, easing the flow of payments across agents. At the same time, it increases both demand for goods and services paid through the money added, and the flow of transfers to be settled across credit institutions that manage payments on behalf of those agents; and the debt outstanding that shall be repaid or refinanced in due course according to the terms and conditions attached to that loan or security. The bank entity which has initiated the process is then exposed and takes responsibility for the additional money amount and the additional risky venture that are underwritten by the banking system as a whole.

In this context, credit manufacturing may involve a profit motive which raises specific hazard for bank system coordination as a whole. Nothing assures that, in principle, credit manufacturing at the level of each bank entity does spontaneously align through time and under all circumstances with the ideal (and possibly unknown) level that would be required to protect monetary (financial) stability in that situation. And this misalignment may occur even though every bank conducts a sound treasury management and credit policy at its individual level. In other words, it is possible that the levels of credit constraint and/or minimal reserve which would be suitable for monetary (financial) stability are higher than the levels that banks would set by following their own profit-seeking strategies under their own reserve management and credit policies. This situation may occur because single banks do not know about the ongoing state of other banks (and of the banking system as a whole), or because their individual policies enable and enact behavioural patterns that are inconsistent with monetary (financial) stability at the systemic level. In sum, a bank may ignore, or be tempted to purposefully neglect, the financial stability target if it expects to take advantage from this move.

This misalignment between individual and collective levels implies a collective action problem that differs from the prisoner’s dilemma. Ricks (2015, p. 66 ff.) has characterised it through ‘The Stag Hunt’ game. Excess credit creation by some banks within the system may involve systemic risk which may eventually affect the other banks within the system, and the outside actors which rely on it, not only the banks which expanded their credit lines excessively. In fact, the latter might even profit from this expansion, improving on their relative position in the meantime before a systemic crash. This problem – involving a coordination need – is embedded in the featuring fact that a multitude of concurrent banks have the capacity or privilege to generate payment means.

Capital requirements and prudential reserves do relate to this functional dimension of the bank activity. In particular, equity injection is expected to provide an ultimate loss-bearing capacity to protect the bank continuity against insolvency. Prudential reserve requirements enable the bank entity to insulate a share of income from distribution, provisioning precautionary reserves against exposure to borrowers’ default. Credit control requirements may also be considered as an institutional response to this functional dimension, targeting the bank exposure to specific borrowers or asset classes. Credit guidance and surveillance do also respond to the moral hazard problem that potentially threats ongoing bank affairs with related parties and insiders, as shown by the Icelandic case study (Johnsen, 2014).

At the level of bank credit manufacturing process, the bank balance sheet does not only comprise holdings on behalf of agents, but also: assets generated by the bank through its lending activity; lending and borrowing undertaken by the bank with other banks; and equity capital for profit-and-loss purpose (Table 6).

Table 6:

Third level of banking – balance sheet presentation of illustrative bank A.

Bank A
Currency Money Holdings (issued by the Central Monetary Authority): 250 – 20 + 20Currency Money Deposits by agents 300 – 20
Loan to borrower: 100Deposit held by borrower: 50
Deposit with Bank B: 50Loan from Bank B: 50
Equity: + 20
  1. For sake of simplicity, the equity is supposed to be underwritten by the bank customers and immediately paid in by cash

The notion of maturity transformation (or liquidity provision) featured by contemporaneous bank theories relates here to this specific structure of bank balance sheet. The typical banking operation consists in generating a loan that becomes an asset on its balance sheet against a deposit that becomes a liability on its balance sheet. By looking at bank balance sheet matching between assets and liabilities, this operation appears to imply the financing of the asset position through a liability with shorter duration. In fact, this maturity mismatch depends on the money multiplication mechanism described above. Bank deposits are cash-equivalent for their holders: They are usually redeemable on demand and at par. However, the bank can use them while they remain available to their holders. In fact, some agents keep maintaining at least a core share of their deposits indefinitely in their bank account. On bank balance sheet, this core share appears as a liability that is continuously rolled over by those agents. It constitutes indeed, in aggregation and over time, a relatively stable source of funding.

This deposit core may be understood as one component of the single bank money base for lending purpose. However, this ongoing money base is not necessarily composed by central bank reserves (as the notion of ‘base money’ does), and it is not needed before bank lending takes place. Other sources of funding complement deposits held and created by the ongoing bank activity. In particular, inter-bank loans, central bank loans, issued bonds and equity shares. The next section shall examine in further details how the ongoing bank entity organises and manages its operations to assure its continuity over time and circumstances.

2.4 Banking as an entity (going concern)

Through combination of these three layers of activity, the ongoing bank entity generates two distinctive processes: a financial process and an economic process.

2.4.1 Bank financial process (treasury department)

The financial process concerns money and credit creation. At the first layer, banks manage the payments system, enabling settlement of transactions and holding the ledgers in economy and society. At the second layer, banks enable delaying payments, shifting settlement across space and time. At this level, one key process of the banking activity emerges: banking enacts the multiplication (generation) of money through bank credit creation. On the one hand, the bank entity assures the availability of money for its customers. On the other hand, it goes on leveraging upon other people’s money, in fact adding money to the existing monetary base.[8] This is made possible by the capacity or privilege the bank has to use money in custody, and the functional equivalence between money and bank deposits. These deposits remain redeemable at will and at par, although the bank entity uses and creates them for lending purpose. This process involves money multiplication and maturity transformation (or liquidity provision).

In this context, the so-called reserve (or treasury) management assures the funding of banking through time and circumstances (Table 7). It involves ongoing inter-bank compensation of payments and inter-bank loan dynamics. This makes banks interdependent, triggering coordination need, for instance, by central banking in its role of bank of banks. Liquidity reserve regulation, including deposit insurance and reserve requirements, points to this dimension.

Table 7:

Cash flow statement (flow of funds) of an illustrative bank.

Cash outflowsCash inflows
Costs of business paid by cashRevenues by banking activities paid by cash
Purchase by cash of assets (investments, securities)Liquidation of assets by cash
Reimbursement of debts of various kindsReimbursement of credits of various kinds
Lending by cashBorrowing by cash
Equity capital buybacks and dividend distribution by cashEquity capital increase by cash
  1. Note to Table 7. For sake of simplicity, we retain settlement by legal tender (cash)

The bank treasury department seeks to rebalance cash inflows and outflows when they become due.[9] It aims to match current and future cash outflows with available sources of funding under cost and security controls. Each source has its own funding cost and involves counterparty risk. If based on collateral, the source of funding implies dependency on collateral perceived quality and availability.

Sources of funding include cash deposits from customers, cash injections from equity and bond issuances, but also borrowing facilities with other banks (inter-bank channels), with the central bank, and with non-bank financial agencies. The latter includes shadow banking financial arrangements.

In this context, the bank entity has a specific recourse to borrowing, which makes it structurally dependent on the banking system to be sustainable (interbank credit). The bank does continuously receive cash inflows in the shape of new incoming payments. It may then seek to rebalance not the whole stock outstanding of its deposits, but only the expected cash outflow from them, that is, the gross or net negative variation of their total stock through time and circumstances. Not only cash reserves, but also borrowing from other banks and from the central bank, may be employed to this purpose. These reserve and credit facilities provide an essential service to the bank, which may then be ready to renounce to some higher return, accept no return at all, or even pay a negative interest rate to maintain access to them.[10]

2.4.2 Bank economic process (bank credit department)

The economic process concerns the bank’s economic organisation and performance. At the third layer, the bank entity organises its own banking activity to generate income for its ongoing sustainability and as remuneration for bank stakeholders, including management and shareholders. The ledger keeping and the money manufacturing are then organised in view to seek for and exploit business opportunities, involving revenues and expenses, profits and losses to the bank entity over time and circumstances. Therefore, the ongoing bank entity adds an income statement to the balance sheet (Table 8).

Table 8:

Income statement presentation of an illustrative bank.

Bank Income Statement
Revenues from payments system managementCost of doing business (including employment)
Revenues from lendingCost of funding
Prudential reserves provisioning
Net Balance = Income to the bank entity

From this perspective, the bank generates loans while simultaneously creating deposits (and then bank money) according to some expected profits that may be realised. At the same time, the bank is exposed to possible losses that may be incurred through its lending activity. In this context, bank equity and prudential reserves are expected to provide a cushion against these losses, preventing the bank to become insolvent. While shareholder equity injection is supposed to be provided by outside investors in loss-bearing irredeemable dividend-remunerated bank capital, reserve provisioning is retained from earnings that are internally generated by the ongoing bank entity. Bank equity regulation, including capital requirements and prudential reserves policy, points to this dimension.

In sum, the bank credit department seeks to generate assets to the bank entity in view to earn income, including remuneration for bank stakeholders such as management and shareholders. From a functional perspective, these assets may be distinguished between loans to non-financial agents (which are not meant to be transferred and remain on the bank balance sheet), securities issued by non-financial agents (which can be transferred and are generally traded on market exchanges), lending (through loans or securities) to other banks (inter-bank facilities), and lending to other non-bank financial institutions. Securities may be held for holding or trading purposes. Securities for holding purpose are expected to be longer-term involvements in other entities. Securities for trading purpose are expected to be continuously exchanged for market trade and market making.

2.4.3 The real-financial nexus

The banking[11] activity comprises two parallel processes. On the one hand, the bank seeks business opportunities by lending. The purpose is here to generate income under cost and loss controls. On the other hand, it shall assure the funding of its operations over time and circumstances through core deposits, equity and bond issuances, but also inter-bank loans and access to central bank facilities. The purpose here is to assure the ongoing balance of inflows and outflows, fulfilling obligations under cost and security controls.

Through combination of both banking processes, the ongoing banking activity acquires a specific role in economy and society.

One real-financial nexus of this banking activity consists in creating credit by granting loans to non-financial agents who may use it for consumption and investment purposes. These agents are expected to pay for interest charges, and repay the capital instalments over time. Paid interest charges will become revenue to the bank entity.

Another real-financial nexus of this banking activity consists in creating credit by granting loans to the state treasury which may use it to finance public expenditure. The loan interest charge and repayment will be covered by taxation and refinancing (public debt rolling over). Paid interest charges will become revenue to the bank entity.

The bank entity itself generates a real-financial nexus when, by setting its financial statements, it determines and eventually distributes net income and cash flows to stakeholders, including management and shareholders. Income to the bank entity is determined on a non-cash (accrual) basis of accounting, while enabling the bank entity to distribute cash payments that provide purchasing power to their recipients. This power to pay enters the overall economic process, adding to the economic system dynamic according to the recipients’ use of purchasing power.

Therefore, the bank entity accounting system adds a non-cash floor dynamic over the basement floor constituted by the cash payment dynamic. Accounting systems (comprising recognition and measurement rules for revenues and expenses, assets and liabilities) purport to represent and govern both entity processes, framing and shaping the overall entity dynamic and its role in economy and society. This non-cash-based (accrual) accounting floor adds up to the cash-based basement floor in the same way as the credit economy builds upon the circular flow in Schumpeter’s theoretical frame of analysis (Biondi, 2008).

To make the impact of bank accounting system clearer, let recall here the previous example of hidden loss on a granted loan. That loss could remain absconded by deposit mass and payments flow dynamic. However, the accounting system decides whether, how and when that loss shall be disclosed.[12] The loss may be recognised according to some formal legal event such as the borrower’s default or insolvency; or it may be imputed through some voluntary or compulsory rule on delayed payment limit threshold. Its amount may be based upon: the expected recoverable amount in some legal procedure; an estimation based upon internal or external thresholds; or a market amount of reference at the time of its book-keeping recognition. The timing and value impact of the loss is modified according to the accounting treatment that is applied. Moreover, the loss may have been provisioned before the triggering event through some prudential reserve accounting method, in view to protect the bank entity continuity and the vested interests of various stakeholders in it, including creditors and shareholders.

Finally, more generally speaking, these possible methods of accounting for loss occurrence and provisioning combine with all the other recognition and measurement rules, in order to establish accounting models of reference. These models frame and shape income generation and allocation over space and time by the bank entity as an economic organisation. They further constitute the accounting basis for income allocation for distributional, prudential and fiscal purposes. Indeed they constitute an integral part of the bank entity institutional structure (Biondi, 2005). Fundamentally, the accounting system does design and then decide whether and when the bank money generation process is allowed to generate income to the bank entity, making it available for distribution to executive management and shareholders.[13]

This bank entity dimension highlights the importance to consider the evolving dynamic of flows and stocks, not only their current values estimated at some arbitrary point of time. The bank entity cannot be represented and governed by looking only at the current values of its assets and its liabilities. The flow of bank activity is critical and essential to its working through time and circumstances. For instance, a bank entity may incur default although its value structure is solid (in case of bank run), whereas it may hide insolvency behind the veil of ongoing activities (in case of hidden cash loss). Its collective and dynamic nature should indeed be considered and accounted for as a going concern.

In this context, book-keeping at nominal value acquires a functional role in assuring traceable consistency throughout the money multiplication process which underlies both money circulation and bank money creation.[14] At the first and second layer of our functional representation, money assets were held by banks on behalf of customers – and circulated across them – at their nominal values. Every departure from this baseline bookkeeping rule – such as loss recognition – involves reshaping the economic impact of ongoing bank activity (as a going concern) on the overall economic process, including entity profit generation.[15] This modifies resource allocation across constituencies and trough time.

The combination of bank money creation and distributable profit generation makes the accounting system critical to the proper working of the bank entity. In fact, the bank entity process is exposed to the paper profit hypothesis which occurs when banks issue fiat money and are able to transform this issuance in accrued (distributable) revenues without having generated anything else but the ‘paper’ issuance, so to speak. It is the accounting system that rules over it to determine when the lending and borrowing activity has accrued revenues in excess of incurred expenses in view to determine net distributable earnings. The ‘originate and distribute’ model of bank credit creation is particularly sensitive to this problem. Under this model, a bank may grant new loans – generating new money – and then book profits by the ‘simultaneous’ distribution of those loans (through asset-backed securitisation, for instance), through: their actual liquidation; their shift into out-of-balance sheet related entities; or their accounting measurement at current (mark-to-market) values. In these circumstances, the originating bank may accrue revenues which maintain loose connection with the underlying loans’ profile and ongoing performance over time and circumstances. An immediate profit is then recognised that might well be actually represented as a premium for bearing a hidden risk (Kerr, 2011; Roca and Potente et al. 2017; Ryan, Tucker, & Zhou, 2016; 2012).

Moreover, the working of the banking system as a whole generates dynamic and collective feedbacks or interdependencies. We mentioned before the case of bank run, when most depositors withdraw and redeem their accounts at once, provoking the bank entity default. Further systemic effects can occur at the collective and dynamic level of the banking system as a whole. Let take two illustrative examples.

First, the banking system may provoke an economic crisis by revoking its credit facilities in a credit crunch. In fact, banks are the main providers of purchasing power. If banks do massively and materially decide to revoke this provision, many agents may be forced to sell their assets at the same time in a context characterised by lack of purchasing power, provoking asset prices to fall and agents to default, with obvious feedback effects on the banks themselves. The banking system may then maintain itself over time only by an orderly evolution of its credit commitment with the agents.[16]

Moreover, the banking system may provoke inflation by granting its credit facilities in a credit bubble.[17] If (some) banks do provide credit in excess to the capacity to absorb it smoothly outside the banking system, this additional purchasing power may generate nominal and relative price increases on the goods (especially assets) that are targeted by borrowers, including securities (triggering financial asset price increases), instead of facilitating the overall economic process and its sustainable development. These price increases may further reshape wealth and income distributions across agents and through time.

Not only real estate, but also securities market finance is sensitive to this inflationary problem. Banks may grant loans – generating new money – to facilitate market trading. If trading follows speculative motive (that is, it targets security price changes in short-time window), increased demand driven by bank credit may foster further securities price increase in a self-reinforcing loop, generating paper profits for both the bank and the trader. In these circumstances, financial actors may accrue revenues which are disconnected by fundamental performance of security issuers.

Second, the banking system as a whole cannot meet a generalised run on bank deposits which leads to redemption and withdrawal on most banks at once. In this situation, each bank struggles to face outflows and maintain its reserve target, while other banks cannot assist it because they are confronted with the same situation due to depositors’ general and massive run on most banks. A loop of bank asset forced sales, asset price falls, and bank defaults may occur as a consequence. Only the central monetary authority may respond to this general run on banking, by substituting asset liquidation with its credit facilities, including non-market-based repo mechanisms (so-called lending of last resort or LLR, already discussed by Thornton, 1802). However, this emergency lending of last resort makes central banking exposed to the moral hazard problem mentioned before.

This collective and dynamic dimension of the banking system as a whole has historically involved some sort of public private partnership between the banking system and the public authorities, including the organisation of a bank of banks, i. e., central banking.

3 The public-private partnership: currency issuance and central banking

The previous analysis focused on money creation through bank credit, pointing to a credit notion of money (Schumpeter).[18] The central monetary authority was introduced in the first level, but it remained passive throughout the banking working process. In fact, central banking plays a crucial role in bank credit dynamics by setting reserve requirements, determining refinancing conditions through its facilities (discount rates, lending conditions, eligible collaterals, etc.), and acting as lender of last resort.

In our miniature economy, under a regime of fiat money, the central monetary authority may manage the money base in two ways: by issuing or retiring currency in circulation (Table 10); and by acting as a bank of banks, that is, granting loans to banks that are ultimately covered by its fiat money creation capacity and privilege (Table 9). In both ways, the central monetary authority becomes a central bank. Its collective action backs and coordinates the system generated by monetary financial institutions as a whole.

Historically speaking, when central banks manage the monetary base, they intervene on state debt. In particular, when central banks issue new currency, they acquire a governmental debt against it, either directly (by funding the state treasury’s need for expenditure), or indirectly (by acquiring state debt from other agents, especially banks). When central banks grant a loan to a bank, they may ask for state debt as collateral.

Table 9:

Credit granting by central monetary authority (central banking).

Central Monetary Authority (Credit Department)
Currency Money Issued: 1000Currency Money Holdings by Bank A: 300
Currency Money Holdings by Bank B: 500
Currency Money Holdings by Bank C: 200
Loan to State Treasury: 500Central Bank Deposit by State Treasury: 500
Loan to Monetary Financial Institutions: 500Central Bank Deposit by Monetary Financial Institutions: 500

This financing of State Treasury and monetary financial institutions may also be covered by direct currency issuance (Table 10).

Table 10:

Money issuance by central monetary authority (central banking).

Central Monetary Authority (Issue Department)
[Asset]*Currency Money Issued: 1000
Loan to State Treasury: 500Currency Money Issued: 500
Loan to Monetary Financial Institutions: 500Currency Money Issued: 500
  1. As a matter of historical evidence, central banking does generally acquire governmental debts against currency money issuance, due to the law or fiat.

This collective action performed by the central bank has two featured impacts. On the one hand, it enables further expenditure by the State Treasury which, in its economic effects, may lead to the creation of real goods and services that could not have been created without this practice.[19] On the other hand, it enables additional money generation by banks, which can now benefit by direct access to central bank financing facilities. Again, this central bank action adds to, and overlaps with issuance of currency in circulation.

It is interesting to note here the connection between money creation and expenditure. When central banking lends to the State Treasury, the latter spends it for consumption and investment purposes. When central banking lends to banks, it delegates to them the actual use of this funding, although the banks are expected to eventually transform it in bank credit to agents (including the State Treasury). However they could also either lend, or directly use it to purchase financial assets, generating asset-price inflation spiralling, as it occurs under the paper profit hypothesis. Functionally speaking, currency and central bank deposits are equivalent: both represent central bank base money which is formally reported on the liability side of the central bank issue department (both “liability” and “reserve” are quite misleading terms in this context).

Therefore, the public private partnership goes beyond the functional dimension of credit, pointing to the overarching governance of the purchasing power (Desan, 2005; Gabor & Ban, 2016; Wall Street Journal – WSJ, 2016). In particular, governmental debt refinancing involves this public-private partnership between government and banking to manage the monetary base. This partnership has historically assumed various forms, which illustrate the overarching constitutional project involved in designing and managing the monetary base of a polity (Desan, 2014). Constitutional political choices are involved in granting some debt securities with the privilege to be refinanced through central banking. For instance, shifting this privilege from governmental securities to private securities will shift control on the purchasing power from the public sphere of government to the private sphere of those security issuers, while reducing overall refinancing size may deleverage the economy, with effects on both spheres (Biondi, 2016a). In this context, massive quantitative easing policy has accommodated private credit interests and increased central bank and treasury exposures in the aftermath of the financial crisis of 2007–08.

A long-standing debate has been occurring between state and private theories of money. Under the functional equivalence between currency and deposit, money generation can emerge through both issuance of cash-equivalent assets, and granting of drawing credit facilities. Both issuance and granting may be performed by public and private members of the monetary system. In both regimes, the essential point is that coordination remains the clue for the monetary system as a whole. Multiple issuers critically depend on inter-currency convertibility and related arrangements; multiple credit grantors critically depend on intra-grantors lending facilities and related arrangements. And the systemic stability and resilience rely on the ongoing connection between currencies and credits through time and circumstances.

Ultimately, matters of institutional design and enforcement define the ways in which the monetary system members control and are controlled in their mutual relationships and their connection with non-monetary constituencies which depend on the monetary system members to use monies in their transactions. Two illustrative examples show the criticality of this institutional architecture. On the one hand, free banking aims to understand money as a commodity, whose price would be the inter-bank interest rate of reference, and whose control may then be performed through market arrangements. On another hand, emergence of digital monies and electronic payment systems does raise (again) concerns of money issuance and supervision which were solved in the past through central banking coordination. In both cases, the free initiative in money matters is at issue. And free initiative is generally associated with the market. Both examples point then to the role of the money market in the money system coordination.

4 The money market

The previous analysis was developed without reference to financial markets. The money transfers were executed at their face values. Lending and borrowing were effectuated through specific transactions with agents or among banks. Bank loans remained on the book of the bank which originated them. Only two kinds of money existed: currency (legal tender) and bank accounts which were functionally equivalent to currency.

Historically speaking, some loans were issued in a specific form that makes them transferable. For instance, a commercial paper represents a debt that is due in a commercial transaction and may involve a long chain of debt transfers with or without recourse on the previous holder along this chain. In case of securities such as bonds, this transfer is made possible without consent by the original borrower and without recourse to the transferor.

This debt transfer may be performed in a variety of ways for a variety of reasons. For instance, a debt transfer may be realised through a market sale and purchase. Or it may be effectuated by using that debt as collateral to securitise a loan that is made dependent on this collateral. In this context, sale and repurchase agreements stand in-between liquidation and pledged borrowing; they do often work out as market-based collateralised borrowing.[20]

Some agencies may specialise in facilitating this transfer through market exchanges, acting as market-makers for financial securities. Credit facilities may be employed to fund these market-making activities. This market mechanism makes the underlying securities liquid, in the sense that, instead of being locked in the bank accounts, they can now be easily transferred. Market exchange may facilitate this transfer by continued trading.

In the aftermath of the systemic liquidity crisis of 2007–08, attention was paid to the ways collateralisation arrangements manage implied transaction risks, generally requiring borrowers to over-collateralise: The current value of the posted collateral is then higher than the actual amount that is borrowed. Evolving terms and conditions for ‘haircuts’ and margins are certainly relevant for the banking system dynamics; they may deal with exposure at the margin. However, when counterparty risk materialises, or when the overall refinancing mechanism comes under distress, the entire outstanding is at stake and the very continued access to short-term wholesale funding.[21] Haircuts and margins do not and cannot protect against the latter situations, as larger umbrellas cannot much against hurricanes. In these circumstances, the systemic dimension of the money markets through space and time shows its significance. Money markets activate relationships which potentially or actually involve more than the two parties in one single transfer, and are exposed to changes in circumstances over time, although this single transfer occurred at one point of time.

The critical feature here is that the more this transfer may be effectuated at will and at par, the more these transferable securities resemble to money.[22]

This quasi-money status provides an advantage especially for banks. As shown above, banks operate in a structural interdependency due to money multiplication and maturity transformation (or liquidity provision). If banks generate a loan that is transferable, they may liquidate it when cash is required by their working process. The more the transfer may be effectuated smoothly and without loss, the more the bank activity is facilitated. Moreover, banks may get extra-funding by using these liquid quasi-money securities as collaterals to obtain loans from other agents, other banks and from the central bank. Last but not least, banks may then be encouraged to grant more loans, for they may expect to transfer or refinance them in various ways.

Historically speaking, this quasi-money status was especially granted to state securities admitted to refinancing facilities managed by the central bank. When a bank acquires a state security, it is involved in lending to the state. At the same time, the bank knows that that security may be liquidated on the market, and collateralised with the central bank. This means that the bank expects to be able to transform it into money easily and without loss. The more this transformation operates at will and at par, the more the security looks like quasi-money in the bank’s eyes. In fact, this monetisation affords the risk to blur the distinction between investment and money, with the functional relationship between the monetary process and the economic process being muddled by the evaporation of this fundamental distinction. The illusion of liquidity becomes panacea and hides the money generation that liquidity may involve.[23]

In the bank balance sheet, collateralisation should appear as a special class in the asset side, and as a credit line received in the liability side (Table 11). On the contrary, its representation as two distinct operations (a sale and a buy-back) might mislead decisions and facilitate the paper profit creation hypothesis addressed before. Off-balance sheet transactions and conduits facilitate this misrepresentation.

Table 11:

Collateralised refinancing by an illustrative bank A - Suggested on-balance sheet presentation.

Bank A
Currency Money Holdings (issued by the Central Monetary Authority): 250Currency Money Deposits by agents: 280
Loan to borrower: 100 of which:Collateralised loan: 30Deposit held by borrower: 50
Deposit with Bank B: 30Loan (collateralised) from Bank B: 30
Deposit with Bank B: 50Loan from Bank B: 50
Equity: 20

However, the liquidity advantage granted by the quasi-money status comes with the exposure to the market price change of the underlying security, if the liquidation or the collateralisation pass through a market-based transaction or involve a market-based evaluation. This exposure is especially critical for banks which depend on such market-based arrangements for funding their operations.

Various arrangements involve this exposure to market price dynamics (or market dependency): market-based valuation of assets or collaterals; fire sales to pay for deposit redemptions; funding facilities to market-traders, involving speculation and market-making on borrowing; refinancing based upon sale and buyback; securitisation chains based on market valuation; collateral reuse and rehypothecation chains on market valuation basis.

This market dependency may further involve a tension in the financial-real nexus of bank activity. Where does the bank profit come from? The leverage that enables bank money creation may be used to fund either trading or investment in business and non-business activities. When used for trading purpose, it may be indirectly connected to investment funding, or merely generate traded asset price inflation. In the last case, bank profit and loss are generated through a purely monetary loop which does not finance investment in real activities. A difference of nature may then exist between bank profit coming from capital gains and revaluations, or from the flow of interest charge payments from borrowers. In the former, the bank may book a profit without engaging with some ongoing real economy activity, taking the shortcut from bank money generation to bank profit distribution (paper profit hypothesis).

In sum, the liquidity added by market dependency may involve macroeconomic issues along with microeconomic excessive and misleading behaviours. As Robertson (1922, 1959, p. 142–143) argued,

when once the speculative spirit is abroad it is not so easily exorcised. The man who expects to make a money gain of 20% by merely sitting for a few months on some bales of cotton or some barrels of oil will not be put off by a rise of 1 or 2% per annum in the rate of interest which he must pay to his bank.

This speculative process definitely exposes the banking system to the paper profit hypothesis. In fact, the market basis makes especially easy to pass money multiplication directly into distributable profits without having performed anything but money paperwork.

5 Shadow banking

Much has been written concerning shadow banking in the wake of the ‘North-Atlantic Financial Crisis’ (Biondi, 2016b; ECB 2015; Financial Stability Board – FSB, 2015).

From our systemic perspective, shadow banking constitutes a series of financial arrangements that do mimic banking activity outside the bank law and regulations.[24] These arrangements play banking functions especially by connecting monetary and non-monetary financial institutions to each other (Adrian & Jones, 2018; Adrian & Shin, 2009; Bavoso, 2017; Blair, 2013; Hockett & Omarova, 2017; Ricks, 2015).

On the liability side, shadow banking grants deposit-like facilities to gather short-term funding for its lending purposes. This mimics the banking operations of deposits provision. Moreover, it may issue currency-like cash equivalent securities which look like currency in their holders’ eyes.

On the asset side, shadow banking may both lend to financial institutions, and securitise their assets in order to make them transferable through liquidation or collateralisation. This collateralisation mimics the refinancing mechanism that has been put in place for state securities. In fact, shadow banking collateralisation may extend far beyond the restricted assets base that used to be admitted by central banking, while relaxing control and security terms and conditions which used to be imposed by it. In this context, Singh and Stella (2012) distinguish two kinds of collateral, whether they are admitted to central bank refinancing facilities or not.

Moreover, the collateral recipient may be able to reuse it, involving long interdependency chains based upon successive transfer arrangements on the collateralised asset and its successive uses (Singh, 2014). Underlying asset price dynamics and counterparty credit dynamics may then reverberate along these chains, disseminating credit and market shocks.

These shadow banking operations become especially critical when involved parties are financial institutions. By lending to and borrowing from financial institutions, shadow banking adds to, and builds upon the leverage capacity of banks. By securitising bank asset portfolio, shadow banking monetises it, as does the central bank through state securities collateralisation.

Furthermore, through financial innovation, shadow banking creates hybrid financial instruments that combine characteristics of debt and equity. More crucially here, these hybrid instruments and other refinancing facilities may involve bank equity shares into the money generation process, monetising shares and hence bank equity. This makes bank shareholder equity endogenous to the financial system dynamics. Therefore, it cannot longer provide an outside cash-based source of funding that assures residual risk-bearing and loss-absorption. This raises an issue that deserves consideration for bank equity capital requirements targeting shareholder equity.[25]

In sum, shadow banking expands the monetary base – generating short-term money-equivalent liabilities and entitlements – through unregulated banking. When it monetises bank assets through collateralised refinancing, shadow banking operates central banking function across financial institutions, acting as shadow central banking which coordinates the monetary working of those institutions. By operating as bank of banks, shadow banking adds unregulated leverage on top of bank leverage. It may be especially sensitive to market dynamics if financing arrangements are based on trading (especially capital market liquidations) and market-based collateralisation. As candidly stated by Paul Tucker (2012: 4),

anyone holding a securities portfolio can build themselves a shadow bank using the securities lending and repo markets. One simply lends out the securities at call for cash, and then one employs that cash by making loans or buying credit-assets with a longer maturity. This is leverage and maturity mismatch.

In this context, systemic concerns do not stop with the systemic risks and excess liquidity generated by banking and central banking in the shadow. A further unanswered question is whether and how much shadow banking actors keep booking paper profits through leveraging and trading among themselves in a sort of seignorage on this market-based (shadow) money creation.[26] Some general interest mission should be acknowledged to justify the backing of such a shadow money creation by public policy and regulation. Why is banking in the shadow admitted and facilitated, if not endorsed? In fact, should anyone who can procure money-equivalent assets while offering monetary liabilities (that is, money-procuring, deposit-equivalent liabilities) be licenced and regulated as a monetary institution?[27]

6 Money aggregates dynamics: systemic implications

The working of the financial system outlined above is based upon the functional equivalence between currency and deposits, featuring a credit theory of money.[28] In the consolidated ledger of economy and society, both can be seen as liabilities held by monetary financial institutions, matched by assets in form of securities (currency included) and loans. Both are means to settle payments and discharge debts. Both are admittances of debt owed by monetary financial institutions, that is, credit admittances that may be used to discharge debts contracted with other agents. The current system of fiat money may be reconsidered from this functional perspective (Table 12 and Table 13).

Table 12:

A functional perspective on hierarchy of money aggregates (central bank base money, bank credit money, interbank credit money).

AssetsLiabilities
Central Bank base money, of which:
CurrencyCurrency-based deposits
Deposits with Central BankLoans from Central Bank
Bank credit money, of which:
Loans to and Securities issued by real-economy agents (Bank Credit Department)Bank credit-based deposits
Interbank credit money, of which:
Loans to and Debt Admittances issued by other banksInterbank credit-based deposits
Deposit with other banksLoans from and Debt Admittances held by other banks

What is currency (that is, paper money) in this context? It is a piece of legal paper issued by the central bank and recorded as a central bank liability, which the rule of law (that is, the institutional framework for the financial system)[29] enforces and grants with (i) free transferability without nominal value change, and (ii) the privilege to settle payments. Since every payment can be understood as the settlement for a debt obligation that has become due (synchronous with the counter-exchange of goods in purchase transactions settled by cash), currency is the means to discharge (all the other) debts. The first feature provides it with transferability or liquidity, the second one makes it the legal tender. The combination of both features into one instrument enables currency to function as a store of payment means, that is, a store of purchasing power through time and circumstances (Fantacci, 2013: 139 ff.).

Table 13:

A functional perspective on money, credit and accounting (conceptual summary).

MoneyCreditAccounting
Banking as ledger keepingMoney as means of paymentCredit as temporary part with money holdingsAccount-keeping at nominal (face) values
Banking as treasury managementMoney as means of redemption (legal tender)Credit as financial dynamics (settling, refinancing, discounting)Cash basis of accounting
Banking as manufacturing of moneyMoney as means of investment (and speculation)Credit as financingAccruals basis of accounting

Drawing upon this legal privilege granted to currency and other central bank liabilities (labelled all together as base money), the ‘fractional reserve’ theory along with some hierarchical views on money aggregates (Werner, 2014a, 2014b) understand bank money generated through credit-manufacturing over time as a more or less mechanical multiplication of base money provided by central banking.[30] But currency legal privileged status does not put central bank base money at the core of the monetary process. The latter relates to the overall bank money creation through credit. Both central bank liabilities, and bank liabilities and bank admittances of debt are significant. As outlined above, currency-based bank deposits and loan-based bank deposits are functionally equivalent: both substitute and lever upon central bank base money which is formally reported on the liability side of the central bank issue department. This implies that both can be employed to settle payments and discharge (all other) debts, as long as each system member relies on the other depositary institutions, which are expected assuring the prompt and safe convertibility of one into another. The same functional equivalence applies to inter-bank lending. Instead of using base money, banks may employ both their own admittances of debt, and their own credit lines to each other (inter-bank credit and related inter-bank deposit creation), to perform settlements and discharges across them, as long as each bank member relies on the others for prompt and safe convertibility of them into central bank base money. In a close and perfectly pooled interbank system, this mutual recognition of debts transforms inter-bank credit into base money, that is, into a multilateral means to settle payments and discharge debts through time.

From this perspective, ‘reserve’ is what reserve does. Indeed the monetary space (broad money base) is constituted by the whole of instruments that are generally accepted to be cash-equivalent through space and time, that is, promptly and safely convertible into currency and other central bank liabilities. They may take the form of IOUs and other debt admittances by banks, but also revolving credit lines across banks, being currency-like entitlements and deposit-like facilities functionally equivalent within a close monetary system. The whole of these instruments enables each institution member of the financial system to rebalance its position, discharging through them its debts and payments that become due. What matters for these cash equivalent instruments is less their potential redemption in cash, than their actual use in discharging debts and settling payments across space and time.

In this way, the financial system features an endogenous money creation mechanism that is inwardly unbound (Biondi & Zhou, 2017), as long as new loans keep being granted and outstanding loans reimbursed over time and circumstances, while being continuously refinanced through inclusion into the ongoing base money jointly constituted by central bank liabilities and inter-bank liabilities held by financial institutions that are members of the monetary system. Boundaries come from outside: the ongoing lending capacity to real-economic borrowers, and the institutional definition of base money. The latter does not depend on some exogenous quantity (stock) of currency – a sort of conceptual relic from the gold standard regime – but on the functional definition of base money (what is admitted to be used to settle payments and discharge debts at the various system levels). This broad base money is jointly managed by central banking and inter-bank refinancing facilities. In both facilities, base money depends on both the list of financial entitlements that are admitted for refinancing (including central bank as ‘dealer’ of last resort, or better, asset-based lender of last resort), and the ongoing capacity of banks to lend to each other (including the central bank as loan-generating lender of last resort). Both interbank coordination modes are cash-equivalent because currency-like and deposit-like financial instruments are functionally equivalent at the interbank level, as are currency and bank deposits at the lower level of the financial system (that concerned with the real-economy payments flow).[31]

This functional equivalence reshapes the theoretical distinction between money as a commodity or a claim (Schumpeter 1917). At the first level of our functional representation, an accounting system kept at nominal values puts the former on the asset side, and the latter on the liability side, revealing their functional dependency. However, a commodity view would consider every movement between accounts as a market transaction, requiring the evaluation of money holdings at current market prices. A market transaction supposes severing the mutual dependence link that the overall systemic process establishes between the involved parties. This market understanding does therefore neglect the institutional membership which makes those money-like holdings (reserves) eligible for and circulating as means of settlement.[32] The interest rate definition is critical here. A commodity theory would reduce it to the commodity price quoted by one peculiar commodity market. In turn, this market view would neglect the privilege implied by having access to the upper levels of coordination in the financial system. From this systemic perspective, interest rate definition does ideally combine some basic membership fee (which Ricks, 2015: 44–46 and figure 1.6 calls the money premium) with some transactional margin. Here inter-bank interest rates settled by either public central banking or private central clearing agencies constitute the cost to access the financial system which combines market and non-market dimensions. This levered economic organisation generally implies segregation and interdependency between the various levels of the monetary system (and related interest rates of reference): the money use granted to non-monetary agents; the role plaid by monetary coordinating agencies; and the coordination among the latter (including central banking and clearing houses).

In this context, the fractional reserve theory represents a corner case where base money is strictly limited to currency (reserve requirement definition), and the central bank monetary policy does not accommodate request for it by monetary member institutions (reserve requirement enforcement). As a matter of fact, over the last three decades, central banks have dropped requests for compulsory reserves; accepted to accommodate the increasing demand for reserves by monetary financial institutions; and extended the list of admitted securities to include debt admittances by monetary financial institutions such as bonds, with the overall purpose to ensure systemic liquidity. During this period, monetary control has been supposed to depend mainly on benchmarking discount rate fixing for central bank refinancing facilities. In parallel, securitisation[33] has facilitated monetary recycling of bank loans, while expanding financial markets have fostered issuances of transferable bank debt admittances that are generally admitted to refinancing facilities. All together, these features foster bank money manufacturing, paving the ways to its unbound money generation process with potential inflationary threats: It is not surprising that market securities-price inflation and real-estate price inflation (when targeted as financial investment instrument) have occurred under this regime, since those securities were especially targeted by inter-bank credit creation (Aikman, Haldane, & Nelson, 2014; 2008).

The ultimate resilience of the financial system rests on the ongoing flow of lending and repayment to real-economic borrowers (coordination related to bank credit); the rebalancing flow of inter-bank lending (coordination related to treasury management); and the mutual coordination of the two flows through space and time. In a close and perfectly pooled system, an exogenous quantity of gold and silver – even substituted by the quantity of currency issued by the central bank – does not constrain or stabilise the system dynamics.[34] In fact, the notion of ‘reserve’ may make sense when one money system is open to transactions with other systems. These inter-currency transactions establish relationships across monetary financial systems, involving outward convertibility into money instruments that do not belong to the inward monetary process.[35] Reserves in those external currencies may play a role to assure payment performance in those external currencies, since the system member cannot generate them. But again, this would involve matters of coordination (the so-called transnational monetary architecture) across systems at the various levels, especially inter-central banking coordination (provided that currencies are ultimately managed through central banking arrangements).[36]

How to deal with an endogenously unbound financial system? Prudently.[37] Together, its features imply a functional separation of money and credit from the real economy. Credit is understood as an entitlement to a certain quantity of money, that is, a self-contained process of anticipation of money in view of receiving money in the future, possibly against an additional money payment for credit service provision. With regard to the real-financial nexus, this arrangement does not include a direct bounding connection with some provision of goods, services or resources that may be paid through that credit (Fantacci, 2013).[38] This credit base of money enacts both the systemic capacity of credit to shift payments and settlements through space and time, and its systemic capacity to lever over existing reserves of goods or cash through the money multiplication process (Biondi, 2010). Its management requires therefore systemic coordination. Ongoing financial stability and resilience of the financial system depend on its overarching institutional setting and actual behaviours by members situated in time, space and circumstances. It is featured by self-balancing, self-reinforcing and self-fulfilling feedbacks that may involve destabilising outcomes. ‘Systemic risk’ and ‘macro-prudential’ management and regulation are new labels for recurrent concerns of systemic coordination. A careful combination of design and policy is required to reach coordination in view to prevent or respond to local and systemic crashes.

It is not by accident indeed if historians of financial systems have been pointing to endemic instability and cyclical outcomes, already highlighted by Thornton (1802). Kindleberger’s notions of manias, panics and runs provide a spirited historical perspective on those concerns. From a systemic perspective, manias relate to self-reinforcing and self-fulfilling feedbacks that enable the financial system to sustain lending growth even beyond reasonable levels (those based upon real-economy capabilities to repay credit through time and circumstances), involving local or global insolvency issues. Panics relate to self-reinforcing and self-fulfilling feedbacks that enable the financial system to dry away from liquidity, distressing the fundamental monetary mechanism that enables some of its assets and liabilities (that is, credits and debts) to smoothly circulate as functional equivalents to cash. In fact, cash itself may be and has been occasionally submitted to runs, when real-economy agents or financial system member institutions distrustfully disregard the legal tender and keep replacing it with alternative means to store purchasing power, settle payments and discharge debts (episodes of hyperinflation and dollarization usually involve such a situation). Even central bank base money becomes subject to and then casualty of its systemic nature, notwithstanding its face value established by law.

Shall we get rid of credit – at least under its current functional and institutional features – because of these possible shortcomings? Before pronouncing a death sentence, at least one positive side of its potential shall be remembered here. Ultimately, credit and a credit base of money ease the financial constraint, enabling production, transfer and consumption acts that would not be possible without them. A cash-in-hand, cash-in-advance system would be certainly more stable and safe, but it would drastically limit not only the money multiplication process, but also the kind of collective and temporal economic organisation that this credit-based regime enables (Biondi, 2010). Can business and non-business entities operate their collective and temporal processes - in view to fulfil their collective missions through time and circumstances - without credit? At the same time, how can we respond to crashes and abuses that yet another systemic financial crisis has made apparent again?

7 Thoughts for banking system regulation

Open-minded theoretical discussion, thoughtful investigative analysis and creative reform proposals are welcome on the unbound and then unfolded fabric of money and finance. Both financial institutional decision-makers and their critics and reformers shall consider the working of the financial system which functionally connects organised entities, money and accounting through space and time in a credit economy (Biondi, 2010). And the related management of a purchasing power that operates over economy and society, requiring an institutional framework to be held socially responsible and accountable to its constituencies. Its design and enforcement appear to be the challenging missions that underlie recently renewed attention to macro-prudential policy and preventative regulation.

In this context, it is important to remind that financial dynamics does not occur in a vacuum. The recent transformations in behavioural and institutional conditions created the very possibility of the North-Atlantic Financial Crisis to occur (Biondi, 2016b). These two dimensions go along generally together in finance, with financial regulation changes accompanying changes in bank management and corporate governance. In particular, change in bank business models went along with relaxed and amended bank regulation (especially the separation between banking segments); financial globalisation went along with the disband of the Bretton Woods Accord and the establishment of an international financial and monetary architecture based on active global financial markets; the derivatives revolution and change in bank treasury management went along with relaxed and amended liquidity provision and related regulations.[39]

Developing an applied analysis concerning financial regulation and supervision, and the variety of institutional architectures and regulatory reform proposals is outside the scope of our theoretical analysis. In fact, some general thoughts may be summarised here to identify some milestones for the regulatory mapping to be taken into consideration.

During recent decades, a market-only view on finance has renewed a commodity understanding of money, where money circulates in a one-to-one transaction between payers and payees. This view blends with a view on banking as financial intermediation in a one-to-one transaction between savers and borrowers. The banking system is then reduced to a quite deterministic platform where nothing remarkable occurs.

As a matter of fact, bankers are not like plumbers who manage the gathering and delivering of pre-existing money flows. Bank entities are different from goods markets: they constitute specific economic organisations which embed specific functions under a specific set of institutions.

What is usually called maturity transformation and liquidity provision points to the money generation process through which bank entities, within each entity and across them, generate money equivalents which work as currency in economy and society. This process leverages upon the existing monetary base (money multiplication), factually adding further layers on it.

In this context, not only bank entities differ from goods markets, but also financial markets differ from goods markets, especially the so-called money markets. The latter generally constitute private ways in which financial actors provide liquidity and maturity transformation to each other, paralleling and mimicking the role and functions that central banking plays for chartered monetary institutions. A third layer of money equivalents is then generated across financial actors, generally between chartered and unchartered ones. This process monetises involved financial positions through refinancing mechanisms that depend on time and circumstances.

In this way, functional equivalence becomes constitutional of the banking system: the one between the legal tender (currency money) and the money-equivalent bank deposit, but also the other one between bank credit provision and continued market-making (or repo-lending) which enables rolling-over and leveraging-upon outstanding financial positions.

Systemic coordination and criticality for the banking system regulation, management and supervision do not only concern its currency or the network of chartered monetary institutions, but their interaction with parallel and complementary ways to organise credit and refinancing mechanisms across financial actors, including transactions across currencies in an international financial architecture.

In this context, and contrary to a market-only view on banking and finance, it is especially important to maintain the division of labour between market pricing and the accounting systems that are in place to manage and inform on ongoing entities and relations (including networks) across the latter. While the market pricing results from profit-seeking strategies in centralised or decentralised exchanges, accounting systems stand to track and control the actual performance of transactions, including realised profits and losses from those market trades; and the actual performance and outstanding gross positions of ongoing entities which interact through the banking system. Here advocacy for mark-to-market accounting appears to involve a fundamental misunderstanding of a banking system jointly composed by ongoing entities, financial markets, and financial transactions.[40]

8 Concluding remarks

Contemporaneous banking theories appear to understand financial institutions as intermediaries, relegating bank money creation through money multiplication outside the core of banking activity.

This article takes a different systemic perspective, pointing to the dynamic and collective features that generate a banking system within and across financial institutions. Classis features such as bank credit creation, as well as classic issues such as bank runs are then reconsidered under the notion of a ‘banking system’ requiring coordination over time and circumstances.

This systemic approach sheds light on the impact and implications of shadow banking in the aftermath of the North-Atlantic Financial Crisis of 2007–08. Shadow banking has been adding hazardous coordination links across financial institutions, making it more sensitive to credit and market shocks.

Our analysis relates issues of systemic risk and systemic crash to the systemic dimension of financial system ongoing working through time and circumstances, involving self-reinforcing and self-fulfilling feedbacks among its functioning elements. Both manias and panics – involving respectively credit bubbles and chains of bank defaults - depend then and are generated by this systemic interdependency which is embedded in its endogenous money generation process.

From this systemic perspective, this process is an essential feature of a credit-based banking system and not an especially new phenomenon. Thus, issues related to systemic risk and the coordination of the financial system, now addressed under the ‘macro-prudential’ and ‘systemic risk’ labels, are in fact recurrent issues which were insightfully addressed by leading theorists in the past.

This process is not bounded but by outward links with the real economy which absorbs generated credits, and the working of inter-bank settlement and refinancing accompanied by its rule of law. Both links point to the coordination that is required to maintain a financial system that remains efficient, resilient and stable through time and circumstances. Its managers, critics and reformers shall consider its systemic nature, to better cope with its role in economy and society. This systemic focus may feature the fundamental mission overarching micro- and macro-prudential policy and preventative regulation. It relates to the overarching constitutional project involved in designing and managing the monetary base of a polity, that is, the governance of its purchasing power.

Acknowledgements

Yuri Biondi is tenured senior research fellow of the National Center for Scientific Research of France (Cnrs - IRISSO), and research director at the Financial Regulation Research Lab (Labex ReFi), Paris, France. This article was presented at the following events: Law and Money 3rd Annual Conference: Law, Finance & Sustainability, SMART Network, University of Sheffield, 11 September 2017; First Festival for New Economic Thinking, Young Scholars Initiative (YSI) - Finance, Law and Economics, Edinburgh, 19-20 October 2017. I wish thanking Luca Fantacci and Thorvald Grung Moe for their comments and suggestions, as well as Morgan Ricks, Margaret Blair and Philippe Moutot for our discussions around this article and ‘The Money Problem’. Usual disclaimer applies.

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Published Online: 2018-07-05

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