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Nor nor are deposits the main source of funding for

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Unformatted text preview: r market-based financial intermediaries2 crashed after the fall of 2008. Nor Nor are deposits the main source of funding for the financial sector, even in the case of commercial banks. Figure 1B shows the net increase in financial sector liabilities each quarter from several sources. Checkable deposits are only a small part of the sector’s financing; moreover, deposits shrank during the years of the lending boom, but have risen again during the crisis—so that neither the growth in credit during the boom nor the contraction of credit in 2008–09 can be attributed to variations in the availability of deposits as a source of financing. Even to the extent that deposits do matter, one may doubt the extent to which the availability of such funding is constrained by reserve requirements, as in recent years these have ceased to be a binding constraint for many banks (for example, see Bennett and Peristiani, Peristiani, 2002). In In response to skepticism about the relevance of the traditional bank lending channel, Bernanke and Gertler (1995) have instead stressed the importance of an alternative “broad credit channel,” in which the balance sheets of ultimate borrowers borrowers constrain the amount that they are able to borrow; models incorporating rating such effects...
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This note was uploaded on 11/23/2013 for the course ECON 11837649 taught by Professor Batchelder during the Spring '10 term at Pepperdine.

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