Banks As Social Accountants: Credit and Crisis Through an Accounting Lens
AbstractThis paper probes the role of banks and credit in our socio-economic system using the metaphor of banks as social accountants (Stiglitz and Weiss 1988). It highlights the credit nature of money, and thus the fact that money is an accounting construct. This motivates the viewing of financial booms and crises through an accounting lens. By accounting necessity, credit creation in deposit-taking institutions implies debt creation. The analysis is that self-amortizing credit to the real sector grows apace with the size of the economy while credit to financial asset markets creates a net debt overhead on the real economy, as illustrated by dissection of long-term credit flows in the US economy. The long boom in credit to the financial sector so led to the growth of debt since the 1980s and onto the credit crisis. Turning to the behavioral aspects of credit and debt growth, the paper also discusses the role of banks and regulators in facilitating the boom. It identifies three ways in which debt growth was de-emphasized in monitoring and policy making.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 15766.
Date of creation: 13 Jun 2009
Date of revision:
credit; economic history; banks; accounting; crisis; regulation;
Find related papers by JEL classification:
- E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
- E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
- E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
- E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
This paper has been announced in the following NEP Reports:
- NEP-ACC-2009-07-03 (Accounting & Auditing)
- NEP-ALL-2009-07-03 (All new papers)
- NEP-MAC-2009-07-03 (Macroeconomics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Mendicino, Caterina, 2007.
"Credit market and macroeconomic volatility,"
Working Paper Series
0743, European Central Bank.
- Wäckerle, Manuel, 2013. "On the bottom-up foundations of the banking-macro nexus," Economics Discussion Papers 2013-5, Kiel Institute for the World Economy.
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