The paper reports results showing a much weakened statistical relationship between total bank credit, total deposits and the broad money supply for the period after 1995 for the US, where no statistical causation can be discerned in either direction. This has been the result of the changing nature of the credit creation process where banks have acquired almost total independence in extending credit from required reserves and core deposits and an ability to circumvent the constraint posed by capital requirements through asset securitization. Because of the explosive increase in nonbank intermediation this has caused, the expansion of bank credit did not result in a commensurate increase in bank deposits and the broad money supply became broader than banks’ total deposits.

August 27, 2008.