Debate on Bank Intermediation

The podcast delves into the long-standing debate over whether banks are intermediaries that borrow to lend or if they create money without needing to borrow. One side, represented by George Selgin, argues that banks are intermediaries and must secure funds from depositors or other sources to finance their loans. Conversely, critics claim that banks create money independently, negating the need for borrowing. Selgin emphasizes the significance of the settlement process in this argument, asserting that despite banks’ ability to create deposits, they ultimately require real resources for settlement.