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Roger Sparks
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"Depository" and "non-depository" as designations is a word-twist that poorly describes an important process distinction. The action-of-banks to accept deposits and then use the deposits as a base for loans creates a "situation". The "situation" is the real difference between the two kinds of institutions. I describe the "situation" as a condition where two owners have claim on the same underlying asset. This "situation" is created when banks lend money by the "loans create deposits" process. The bank, once a deposit has been made, can loan that deposit to a second party. With loan in place, the second party has identical claim on deposits-at-the-bank as does the original depositor. A new "two claims on one deposit" event constitutes an increase in the money supply, with macroeconomic effect.
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Oct 29, 2013