Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/315660 
Year of Publication: 
2025
Citation: 
[Journal:] European Journal of Economics and Economic Policies: Intervention (EJEEP) [ISSN:] 2052-7772 [Volume:] 22 [Issue:] 1 [Year:] 2025 [Pages:] 32-53
Publisher: 
Edward Elgar Publishing, Cheltenham
Abstract: 
This paper introduces modern readers to 'banking theory', that is, to the understanding of the banking system that was held by academics and practitioners in the early years of the twentieth century. This theory contrasts with the theoretic framework that views banks as intermediaries that receive deposits and invest deposits in assets. The basic elements of banking theory are related to the modern network effects literature, and a bank-centered view of the financial system is derived: all demand and short-term bank liabilities, including contingent liabilities, are potential money and near-money assets; and any non-bank liabilities that have monetary properties derive them from the banking system. This framework is then used to evaluate modern money markets, and the paper proposes that bank-liability-based measures of the money supply be developed, and that regulators recognize that contingent bank liabilities often function as a substitute for deposits and should be regulated similarly.
Subjects: 
banking theory
circuit theory
contingent liabilities
money market
network effects
JEL: 
B10
B50
E5
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by Logo
Document Type: 
Article

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