Abstract
Since challenge to monetary theory by Gurley and Shaw in 1955, of commercial banks has been a live issue. In a recent contribution to debate in this Journal, Guttentag and Lindsay aim to provide the rationale that has been sought by defenders of traditional that commercial banks are 'unique' ever since Gurley-Shaw challenge to this view (Guttentag and Lindsay 1968, p. 991). In line with analysis by Warren L. Smith (Smith 1959, pp. 535-38), Guttentag and Lindsay spell out modus operandi by which commercial banks are endowed with a substantially greater capacity for varying total volume of credit han nonbank intermediaries. Guttentag and Lindsay show that (1) fluctuations in cash-reserve ratios of commercial banks have a significantly greater impact on total financial system's credit volume than comparable fluctuations in ratios of nonbank intermediaries; and (2) this contrast persists even after taking into account secular growth of nonbank intermediaries relative to banks. Given by Smith (Smith 1959, pp. 535-36) as well as by Guttentag and Lindsay, explanation for these results is that nonbank intermediaries use bank deposits as their reserves. In what follows, I shall show that, although Guttentag and Lindsay have convincingly confirmed higher credit multiplier of commercial banks, this confirmation either constitutes uniqueness of commercial banks nor justifies entire set of controls historically applied to commercial banks.
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