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,
- BoE revamps expenses rules after criticism from MPs
- Draghi warns of downside risks as ECB ends net asset purchases
- Book notes: Macroprudential policy and practice, edited by Paul Mizen, Margarita Rubio and Philip Turner
- Central banks turn to visual communication in 2018
- Five central banks and supervisors join environmental group