Dynamic Banking and the Value of Deposits

Abstract

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Why Bank Money Creation?

“…In modern times, the money banks create is a claim on fiat money which is created by the central bank. Different modeling approaches are pursued and applied to capture this (Skeie, 2008;Jakab and Kumhof, 2019;Wang, 2019;Bolton et al, 2020;Faure and Gersbach, 2021;Piazzesi et al, 2021;Wang, 2021;Li and Li, 2021;Parlour et al, 2022). 6 In this paper, we provide a rationale why our current monetary system, in which banks have the privilege to create private money as claims on public fiat money, is advantageous when there is unobservable heterogeneity among banks.…”

Monetary Policy with Reserves and CBDC: Optimality, Equivalence, and Politics

“…In Taudien (2020) inside money issued by competitive banks reduces the financing costs of producers. 7 Following literatures in macroeconomics and banking we assume that reserves affect the operating costs of banks in a deposit based payment system, without modeling the market micro structure (e.g., Bolton et al, 2020). In Kiyotaki and Moore (2019) a liquid security, like reserves, relaxes resalability constraints and increases productivity (reduces costs).…”

Voluntary Equity, Project Risk, and Capital Requirements

“…6 Endogenous capital buffers have also been studied in dynamic models of capital regulation when the issuance of new capital is costly. Equity holdings above the required minimum then serve as precautionary buffers against unexpected increases in capital requirements (Repullo and Suarez, 2013), sudden inflows of deposits (Bolton et al, 2020), or to absorb losses (De Nicoló et al, 2021).…”