Posts Tagged ‘Bank Deposits

By: Andrea Terzi

The total amount of bank deposits has nothing to do with the saving attitude, or with the spending decisions, of bank accounts’ holders. A new bank deposit can only be created through two main channels. In one, deposits are born twins with bank loans to the non-bank private sector (households or firms). In the other, deposits are born twins with bank reserves as a result of payments made by the public sector (Treasury or Central bank) to the non-bank private sector. A third process, yet smaller in importance, is when the banking sector makes net payments to the non-bank private sector.

Read the rest of this entry »

By: Andrea Terzi

No, it never does. The total amount of deposits in the banking system cannot change as a result of spending decisions by households or firms (technically, the “non-bank private sector”). Spending decisions can only move deposits from one account to another, and cannot cause a change in overall deposits.

Read the rest of this entry »