Topics
Credit creation
Credit creation is the process by which commercial banks are able to create loans in the form of new deposits.
Limits to credit creation by banks
- Market forces – these influence the number of profitable lending opportunities.
- Regulatory policies e.g. higher capital reserve requirements imposed by a central bank might limit lending
- Behaviour of consumers and businesses - e.g. decisions about how much of their debt to repay.
- Monetary policy – the level of monetary policy interest rates influences the demand for loans from households and businesses including demand for business loans and mortgage loans in the housing market.
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Credit Squeeze - Mortgage Rates Rise as Lenders Return
4th October 2022
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How do commercial banks create credit?
Topic Videos
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The return of low-deposit mortgages
20th January 2021
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Credit: How it is Created (Financial Economics)
Study Notes
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How the magic money tree works
30th October 2017