A note on number theoretic approach to credit creation in banking and other financial intermediaries

Credit is the currency of both banking and non-banking financial intermediaries. The creation of credit has always been seen as one of the key determinants of a healthy financial industry. In this paper, our objective is to use a number theoretic approach to the specification of a credit creation multiplier for interactions of banking system with non-bank financial intermediaries to produce a realistic formula. The research is further extended into more general sorting processes so that coefficients of the powers of the liquidity ratios can be selected at any stage of the process. The proposed new model yields a more realistic approach to the credit creation multiplier than traditional models. This leads in the final section to consideration of the estimation of liquidity ratios, which are one actuarial factor (among many) in superannuation calculations. Used correctly in the financial sector, the new model can provide regulators and stakeholders a better view of the credit creation scenario with increased insight into the micro factors of credit creation.