A Study on the Foundations, States, and Endogenous Mechanisms of Bank Credit Creation

Organizers

Johansson Anders , Manyao Deng , Ruize Gao , Liyan Han , Zhen Li , Jin Liu , Fei Long , Dongbo Shi , Ke Tang , Xing Yan , Qi Zhang

Speaker

Zijian Feng

Time

Friday, August 28, 2026 3:00 PM - 4:00 PM

Venue

A3-2-303

Online

Zoom 242 742 6089 (BIMSA)

Abstract

In modern credit-based monetary systems, commercial banks expand their balance sheets when they extend loans and, in doing so, create deposits; loan repayment contracts the corresponding assets and liabilities. Bank credit is therefore not merely a reallocation of pre-existing funds, but a dynamic process of creation, withdrawal, and feedback under multiple constraints. This talk addresses three related questions: what determines the boundary of bank credit expansion; how lending and repayment jointly generate expansion, adjustment, and contraction states; and how repayment, loss recognition, and capital evolution create intertemporal feedback. Empirically, the analysis of credit boundaries relies mainly on quarterly regulatory reports of U.S. commercial banks from the FDIC. Flow and state analysis combines U.S. FDIC Call Reports, quarterly data from the Deutsche Bundesbank, and macroeconomic GDP data; the main U.S. sample covers 1997Q2–2023Q1 and the German sample 2003Q1–2022Q4. Methodologically, the study combines bank-level regressions, stock-flow consistent analysis, ABM-SFC simulation, and SVAR identification. The results show that credit expansion is jointly shaped by capital, liquidity, and payment-settlement constraints; net loan growth is often only the small difference between large lending and repayment flows; stronger repayment can act as an independent contractionary shock; and retained earnings and loss recognition form opposing feedback loops through bank capital. The study integrates constraints, flows, states, and feedback into a system-dynamics view of bank credit creation and contraction.