Money,intermediation,andbanking$

The businessofmoneycreationisconceptuallydistinctfromthatofintermediation.Yet, these twoactivitiesarefrequently—but notalways—combined togetherintheformofa bankingsystem.Wedevelopasimplemodeltoexaminethequestion:Whenisbanking essential?Thereisaroleformoneyduetoalackofrecord-keepingandarolefor intermediation duetotheexistenceofprivateinformation:bothmoneyand intermediation areessential.Whenmonitoringcostsassociatedwithintermediation are sufficientlylow,thetwoactivitiescanbeseparatedfromoneanother.However, when monitoringcostsaresufficientlyhigh,abankingsystemthatcombinesthesetwo activities isessential