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Was There Ever a Lending Channel?

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  • Eugene F. Fama

Abstract

The lending channel model posits that control of deposits that have reserve requirements allows the Fed to constrain the loans to businesses and consumers that are the comparative advantage of banks. The constraint works because banks do not use traded assets and liabilities with no reserve requirements to offset the effects of variation in deposits on loans. The results presented here are more consistent with an alternative model in which profit†maximising banks vary traded assets and liabilities with and without reserve requirements to exercise profit opportunities in loans and so shield them from the Fed.

Suggested Citation

  • Eugene F. Fama, 2013. "Was There Ever a Lending Channel?," European Financial Management, European Financial Management Association, vol. 19(5), pages 837-851, November.
    • Handle: RePEc:bla:eufman:v:19:y:2013:i:5:p:837-851
    DOI: 10.1111/j.1468-036X.2013.12034.x
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    References listed on IDEAS

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    1. Fama, Eugene F, 1990. "Contract Costs and Financing Decisions," The Journal of Business, University of Chicago Press, vol. 63(1), pages 71-91, January.
    2. Fama, Eugene F., 1980. "Banking in the theory of finance," Journal of Monetary Economics, Elsevier, vol. 6(1), pages 39-57, January.
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    Cited by:

    1. Roulet, Caroline, 2018. "Basel III: Effects of capital and liquidity regulations on European bank lending," Journal of Economics and Business, Elsevier, vol. 95(C), pages 26-46.

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