WSEAS Transactions on Business and Economics

Print ISSN: 1109-9526
E-ISSN: 2224-2899

Volume 16, 2019

Notice: As of 2014 and for the forthcoming years, the publication frequency/periodicity of WSEAS Journals is adapted to the 'continuously updated' model. What this means is that instead of being separated into issues, new papers will be added on a continuous basis, allowing a more regular flow and shorter publication times. The papers will appear in reverse order, therefore the most recent one will be on top.

Volume 16, 2019

A Note on Number Theoretic Approach to Credit Creation in Banking and Other Financial Intermediaries

AUTHORS: A. G. Shannon, Fazluz Zaman, Tonmoy Choudhury

Download as PDF

ABSTRACT: Credit is the currency of both banking and non-banking financial intermediaries. The creation of credit has always been seen as one of the key determinants of a healthy financial industry. In this paper, our objective is to use a number theoretic approach to the specification of a credit creation multiplier for interactions of banking system with non-bank financial intermediaries to produce a realistic formula. The research is further extended into more general sorting processes so that coefficients of the powers of the liquidity ratios can be selected at any stage of the process. The proposed new model yields a more realistic approach to the credit creation multiplier than traditional models. This leads in the final section to consideration of the estimation of liquidity ratios, which are one actuarial factor (among many) in superannuation calculations. Used correctly in the financial sector, the new model can provide regulators and stakeholders a better view of the credit creation scenario with increased insight into the micro factors of credit creation

KEYWORDS: Credit creation, financial intermediaries and number theoretic approach


[1]Abbassi, P., Iyer, R., Peydró, J.-L., & Tous, F. R. (2016). Securities trading by banks and credit supply: Micro-evidence from the crisis. Journal of Financial Economics, 121(3), 569-594.

[2]Allen, F., & Santomero, A. M. (1997). The theory of financial intermediation. Journal of Banking & Finance, 21(11-12), 1461-1485.

[1]Atanassov, K. (2016). Generalized nets as a tool for the modelling of data mining processes Innovative Issues in Intelligent Systems (pp. 161-215): Springer.

[3]Berger, A. N., Bouwman, C. H., Kick, T., & Schaeck, K. (2016). Bank liquidity creation following regulatory interventions and capital support. Journal of Financial Intermediation, 26, 115-141.

[4]Bourva, J. L. (1992). Money creation and credit multipliers. Review of Political Economy, 4(4), 447-466.

[5]Danckert, S. (2018). Mortgages and credit cards the first focus of banking royal commission. The Sydney Morning Herald. Retrieved from

[6]De Soto, J. H. (1995). A critical analysis of central banks and fractional-reserve free banking from the Austrian school perspective. The Review of Austrian Economics, 8(2), 25-38.

[7]Dubois, D., Gottwald, S., Hajek, P., Kacprzyk, J., & Prade, H. (2005). Terminological difficulties in fuzzy set theory—The case of “Intuitionistic Fuzzy Sets”. Fuzzy sets and systems, 156(3), 485-491.

[8]McLeay, M., Radia, A., & Thomas, R. (2014). Money creation in the modern economy. Papanikolaou, N. I. (2018). A dual early warning model of bank distress. Economics Letters, 162, 127-130.

[9]Room, T. G., & Mack, J. M. (1966). The Sorting Process: A Study in Mathematical Structure: University P.

[10]Scholtens, B., & Van Wensveen, D. (2000). A critique on the theory of financial intermediation. Journal of Banking & Finance, 24(8), 1243-1251.

[11]Van Den End, J. W., & Kruidhof, M. (2013). Modelling the liquidity ratio as macroprudential instrument. Journal of Banking Regulation, 14(2), 91-106.

[12]Werner, R. A. (2015). Do banks really create money out of nothing? Another empirical test of the three theories of banking. International Review of Financial Analysis, 1-41.

WSEAS Transactions on Business and Economics, ISSN / E-ISSN: 1109-9526 / 2224-2899, Volume 16, 2019, Art. #21, pp. 178-184

Copyright Β© 2018 Author(s) retain the copyright of this article. This article is published under the terms of the Creative Commons Attribution License 4.0