IMF: “Banks are not intermediaries of loanable funds”

Zoltan Jakab and Michael Kumhof have published a short article at VoxEU with the above title. This is the abstract:

Problems in the banking sector played a seriously damaging role in the Great Recession. In fact, they continue to. This column argues that macroeconomic models were unable to explain the interaction between banks and the macro economy.  The problem lies with thinking that banks create loans out of existing resources. Instead, they create new money in the form of loans. Macroeconomists need to reflect this in their models.

… and here is the rest of the article.