Was There Ever a Lending Channel?
Eugene F. Fama
University of Chicago - Finance
July 21, 2013
Chicago Booth Research Paper
The lending channel model posits that control of deposits that have reserve requirements allows the Fed to constrain the financing of the illiquid loans to businesses and consumers that are the comparative advantage of banks and their link to real activity. The constraint works because banks do not use traded liquid assets and liabilities with no reserve requirements to offset the effects of variation in deposits on loans. The results presented here are more consistent with a simple alternative model in which profit-maximizing banks vary traded assets and liabilities with and without reserve requirements to exercise profit opportunities in loans and so shield them from the Fed.
Number of Pages in PDF File: 21
JEL Classification: E50working papers series
Date posted: December 20, 2012 ; Last revised: July 25, 2013
© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.
This page was processed by apollo5 in 0.375 seconds