That is, banks extend credit by creating money. This “money creation” process is constrained: by their need to manage the liquidity risk – from the withdrawal of deposits and the draw-down of back-up lines – to which it  13  Akerlof, G. A. (1970), “The market for “lemons”: quality uncertainty and the market mechanism”, Quarterly Journal of Economics, Vol. 84, No. 3, pp.
488-500. A market for “lemons” issue arises when informational deficiencies give rise to uncertainty about the true quality of a product. In such circumstances, buyers choose to pay only average prices for goods that carry the risk of sellers overstating their true quality.