The underlying drivers of the change in the supply of bank lending, and so in broad money, may also bring about shifts in the demand for money, validating a different level for real money balances – perhaps most obviously, if investment and so the economy’s productive capacity were affected.
For some underlying shocks, it is probably better to think about the effects on banking intermediation rather than simply on bank lending. Faced with a change in their costs and opportunities, bankers might sometimes be able to adjust the terms on either their assets or their liabilities (or both). Currently, banks have incurred an adverse shock to their wholesale funding (Chart 17).