Access Investments-European Union- ROMANIA

  In a banking system built on the foundation of money being created by banks through granting loans and fractional reserves, insolvency is the natural state of things.  In this context, the confidence of the depositors and the guarantees granted by the state, along with the permanent support of the central banks, represent essential conditions for the functioning of financial institutions. "The truth about banks" is the title of an article from the Finance & Development magazine of the IMF (author's note vol. 53, no. 1, March 2016), in which the authors, Michael Kumhof and Zoltan Jakab, write that "banks create new money when they grant loans, a phenomenon which can start and exacerbate financial crises".   Creating money out of thin air represents "a critical vulnerability of financial systems" for two reasons which have been known at least since the time of the Great Depression in the first half of the 20th century. First of all, "if banks are free to create money when they grant loans, then that amplifies the potential to create cyclical booms and busts, especially when banks mistakenly assess the debtors' repayment ability", according to the economists of the IMF.