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Was There Ever a Lending Channel?

Eugene F. Fama

University of Chicago - Finance

July 21, 2013

Chicago Booth Research Paper
Fama-Miller Working 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: E50

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Date posted: December 20, 2012 ; Last revised: April 16, 2015

Suggested Citation

Fama, Eugene F., Was There Ever a Lending Channel? (July 21, 2013). Chicago Booth Research Paper; Fama-Miller Working Paper . Available at SSRN: https://ssrn.com/abstract=2191737 or http://dx.doi.org/10.2139/ssrn.2191737

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Eugene F. Fama (Contact Author)
University of Chicago - Finance ( email )
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-702-7282 (Phone)
773-702-9937 (Fax)

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