Mairéad Farrell (Galway West, Sinn Fein)
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265. To ask the Minister for Finance if he accepts the view of other central banks such as the Bank of England on a matter (details supplied) in relation to commercial banks and the process of money creation. [6066/25]

Paschal Donohoe (Dublin Central, Fine Gael)
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I take it the Deputy is referring to papers issued by the Deutsche Bundesbank and the Bank of England respectively. The Deutsche Bundesbank paper is as I understand it a paper which comments on the role of banks, non-banks and the central bank in the money creation process. The Bank of England’s paper comments on the creation of money in the modern economy. In very broad terms the papers describe how credit is provided in a modern economy taking into account interplay between the various factors and institutions involved.

These papers have been issued by the respective institutions and are publicly available on the respective Central Banks website. It would be inappropriate for me to comment on papers issued by such Central Banks. As the Deputy is aware monetary policy in the Euro Zone is the function of the European Central Bank.

The Central Bank of Ireland has provided me with the following information on the matter.

The Central Bank agrees that commercial banks do not simply act as intermediaries, lending out deposits placed by savers. Banks can, in principle, create new monetary purchasing power by providing loans without the need for pre-existing deposits. However, this ability to create money through lending is not without limit. Other important considerations include banks’ own assessment of the implications of new lending for their profitability, solvency and compliance with capital regulations.