Investment Banks Invest in Finance with Minor Impact on the Real Economy

March 17th, 2015
in News, econ_news, syndication

Econintersect: It was about one year ago that the Bank of England published a research report that documented the well known (but often obscured from view of the broad public) fact that banks create deposits by writing loans with money "created out of thin air" based upon the security of assets lent against. That paper, "Money creation in the modern economy" now has a companion of comparable importance: "Investment banking: linkages to the real economy and the financial system" by Kushal Balluck of the Bank's Banking and Insurance Analysis Division. This is a clear and complete summary of banking sector activities and an empirical assessment of the money volumes of various banking functions.


Follow up:

The study finds that the revenue of the largest global investment banks is 75% derived from interbank activities and only 25% from activities in the "real economy".  In other words, investment banking is much more about "making money" and much less about "making goods and services" than some may have heretofor thought.  Certainly those who proclaim that their bank is "doing God's work" would want to portray that just the opposite were true, unless, of course, money is their god.

The following two graphics from the report summarize investment bank activities, including how investment banks interact with the real economy.

Click on the following infographic to read the complete report.



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