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PKSG Working Paper Series

Working Paper PKWP0902

Basel rules, endogenous money growth, financial accumulation and debt crisis

February 2009

Trond Andresen

A Basel-type bank regulation regime has the side effect of endogenous money growth. The growth rate turns out to be inversely proportional to the required minimum capital/asset ratio. This money growth contributes to avoiding debt crises, as opposed to non-bank lending which increases debt but not money stock, and is therefore dangerous in the long run. The phenomenon of banks selling loans onwards is also examined. It is shown that this doesn’t only decrease the bank’s risk, it may also imply steeper asset growth for the selling bank.

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