Banking strategy and credit expansion: a post-Keynesian approach

Abstract

This paper aims to clarify the relationship between individual banks and banking industry behaviour in credit expansion. The authors argue that the balance sheet structure of an individual bank is only partially determined by its management’s decision about how aggressively to expand credit; it is also determined by the balance sheet positions of other banks. This relationship is shown explicitly by a simple disaggregation of the variables that enter into the economy-wide money multiplier. The approach taken here revives the multi-bank approach to banking analysis pioneered by Wallace and Karmel in the 1960s, which is particularly wellsuited to integrating micro and macro levels in Keynesian banking analysis.