BoE paper highlights flaws in bank modelling

bank-of-england-2016

Though financial sector modelling has improved since the crisis, many models still oversimplify the banking sector, impairing their results, according to a new staff working paper published by the Bank of England.

Zoltan Jakab and Michael Kumhof write that many models treat banks as “warehouses”, taking in deposits and loaning these onwards – money acts like a physical commodity.

“This conceptualisation of banks differs greatly from actual financial institutions and transmission mechanisms,

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