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Unformatted text preview: r market-based financial intermediaries2 crashed after the fall of 2008.
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
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 constrain the amount that they are able to borrow; models incorporating
rating such effects...
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