Compensatory lending

The seasonal differences in the credit needs of individual companies and industries lead to – temporary surpluses of deposits at the banks, while – at the same time, other sectors of the economy have an increased demand for loans. The granting of loans, which takes place on the basis of such a set-aside of money – because the amounts entrusted to the bank in return for interest subsidies are resting in accounts – is referred to as compensatory lending. This is calculated by the central bank in each case. – As economic activity increases, a demand for loans arises which exceeds the scope of the money set-aside described above. Now the banks need additional central bank money, which they can obtain from the central bank in various ways. – See endogeneity principle, deposit facility; facility, permanent, money, monetary base, money supply, credit expansion, credit crunch, liquidity, M1, marginal lending facility, means of payment.

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University Professor Dr. Gerhard Merk, Dipl.rer.pol., Dipl.rer.oec.
Professor Dr. Eckehard Krah, Dipl.rer.pol.
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