The Versatility of Money Multiplier Under Basel III Regulations

6 Pages Posted: 22 Jun 2018

See all articles by Wanting Xiong

Wanting Xiong

Beijing Normal University (BNU) - School of Systems Science

Boyao Li

Beijing Normal University - School of Systems Science

Yougui Wang

Beijing Normal University

H. Eugene Stanley

Boston University - Center for Polymer Studies

Date Written: June 6, 2018

Abstract

The fractional reserve theory of money creation only considers the reserve requirement but ignores prudential regulations. We study the impacts of three prudential regulations under the Basel III framework on the commercial bank's ability to create money. Using a balance sheet approach, we formulate the corresponding maximum money multiplier under each regulation. We find that in addition to the concerned minimum required ratio, the banking system's liquidity and equity positions also play important roles in determining the maximum money supply.

Keywords: prudential regulations, money creation, balance sheet approach, liquidity and equity position, money multiplier

JEL Classification: E51, G28, G18, E60

Suggested Citation

Xiong, Wanting and Li, Boyao and Wang, Yougui and Stanley, H. Eugene, The Versatility of Money Multiplier Under Basel III Regulations (June 6, 2018). Available at SSRN: https://ssrn.com/abstract=3192147 or http://dx.doi.org/10.2139/ssrn.3192147

Wanting Xiong

Beijing Normal University (BNU) - School of Systems Science ( email )

Beijing
China

Boyao Li

Beijing Normal University - School of Systems Science ( email )

No. 19, XinJieKouWai St., HaiDian District
Beijing, 100875
China

Yougui Wang

Beijing Normal University ( email )

19 Xinjiekouwai Street
Haidian District
Beijing, 100875
China

H. Eugene Stanley (Contact Author)

Boston University - Center for Polymer Studies ( email )

Boston, MA 02215
United States

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