Features of the functioning of the banking multiplier

Subject. The process of money creation by commercial banks through lending and the mechanism of the banking multiplier under Russian institutional conditions. Objectives. To assess the role of sources of monetary expansion in the process of credit emission as a factor contributing to inflation growth. Methods. A systems approach was applied, along with methods of analysis, synthesis, induction, deduction, and comparison. Results. The algorithm of money creation by commercial banks in the lending process has been elucidated. The “transport” function of funds held in correspondent accounts has been identified. It has been established that, in addition to money creation, credit emission by the country’s largest credit institutions plays a significant role in monetary expansion due to the intra‑bank turnover of the created money. Conclusions and Relevance. The process of money creation by commercial banks when issuing loans and the subsequent expansion of the money supply due to the functioning of the banking multiplier are confirmed. The need to maintain sufficient liquidity to fulfill clients’ instructions for external transfers is the main constraint on credit emission. In addition to the multiplier effect, a significant increase in the money supply occurs as a result of credit emission by the largest banks and the subsequent internal turnover of the created money. The results may be used by the Bank of Russia and other relevant authorities to improve competitive rules in the banking sector and to support the implementation of monetary policy.