Bank Profitability and Interest Rates

In recent years many financial and monetary issues have been clarified and explained by post-Keynesian theory, but some open questions remain on the functioning of the bank and the role of bank profitability in interest rate determination and distributive conflict. The book identifies a banking production cycle and thus clarifies the role of deposits, loans and capital for the (single) bank from a post-Keynesian endogenous money perspective. This analysis makes it possible to include deposits among the inputs and loans among the outputs of the banking sector. The book also discusses the extent to which the concept of normal capacity utilisation can be transferred to the banking sector. Like any other productive sector, the bank must obtain a profit rate on invested capital that can be considered ‘normal’. This factor makes it possible to develop a Sraffian-type price equation for the banking sector, where the interest rate is ultimately determined by the normal profit rate. Finally, the book aims to investigate the compatibility between the monetary theory of distribution and the ideas developed in the book itself, assessing whether this newly elaborated approach is more or less able to describe the distributional effects of both the zero (or negative) interest rates following the financial crisis and their sudden rise in recent years, also taking into account the more direct relationships between interest rates and wages. The book will appeal to readers who wish to explore post-Keynesian, classical-Keynesian and Marxian approaches to financial and monetary issues.