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Financialization and the transformation of commercial banking: understanding the recent Canadian experience before and during the international financial crisis

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  • Mario Seccareccia

Abstract

As creators of credit money, commercial banks prevent the nonfinancial private sector from being constrained by its prior savings in accordance with the theory of the monetary circuit. Commercial banking provides the means for a private economy to break away from its financial constraint. Commercial banks are a blend of private/public institutions at the foundation of an economy's payment system, with the accompanying critical externalities. As the economy has moved historically from the prefinancialization era toward a hyperfinancialized economy, there has been a shift away from its traditional role of financing production. The activity of commercial banking has evolved, especially as a result of securitization. Commercial banks are now found at the center of one large profit-making transactions machine that largely denies their original role in the productive sphere. It is their new activities, together with all the associated perverse incentives that this transformation has created, that brought about the financial crisis. The article analyzes this evolution by studying more carefully the Canadian experience prior to and following the financial crisis.

Suggested Citation

  • Mario Seccareccia, 2012. "Financialization and the transformation of commercial banking: understanding the recent Canadian experience before and during the international financial crisis," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 35(2), pages 277-300.
    • Handle: RePEc:mes:postke:v:35:y:2012:i:2:p:277-300
    DOI: 10.2753/PKE0160-3477350206
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    Cited by:

    1. Jo Michell, 2017. "Do Shadow Banks Create Money? ‘Financialisation’ and the Monetary Circuit," Metroeconomica, Wiley Blackwell, vol. 68(2), pages 354-377, May.
    2. Dögüs, Ilhan, 2021. "Financialisation and market concentration in the USA: A monetary circuit theory," ZÖSS-Discussion Papers 87, University of Hamburg, Centre for Economic and Sociological Studies (CESS/ZÖSS).
    3. Mohamed Dia & Amirmohsen Golmohammadi & Pawoumodom M. Takouda, 2020. "Relative Efficiency of Canadian Banks: A Three-Stage Network Bootstrap DEA," JRFM, MDPI, vol. 13(4), pages 1-25, April.
    4. Hakhu, Antra Bhatt, 2015. "Productive Public Expenditure and Debt Dynamics: An Error Correction Representation using Indian Data," Working Papers 15/149, National Institute of Public Finance and Policy.
    5. Photis Lysandrou & Taimaz Ranjbaran, 2021. "Financialisation reinforced: the dual legacy of the covid pandemic," Review of Evolutionary Political Economy, Springer, vol. 2(3), pages 589-606, December.
    6. Brenda Spotton Visano, 2017. "Gendering Post-Keynesian Monetary Macroeconomics With Situated Knowledge," Review of Radical Political Economics, Union for Radical Political Economics, vol. 49(4), pages 567-573, December.
    7. Gholam R. Amin & Mustapha Ibn Boamah, 2020. "A new inverse DEA cost efficiency model for estimating potential merger gains: a case of Canadian banks," Annals of Operations Research, Springer, vol. 295(1), pages 21-36, December.
    8. Malcolm Sawyer & Marco Veronese Passarella, 2017. "The Monetary Circuit in the Age of Financialisation: A Stock-Flow Consistent Model with A Twofold Banking Sector," Metroeconomica, Wiley Blackwell, vol. 68(2), pages 321-353, May.
    9. Lou, Weifang & Yin, Xiangkang, 2014. "The impact of the global financial crisis on mortgage pricing and credit supply," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 29(C), pages 336-363.

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