We extend the study of banking equilibrium in Berentsen, Camera and Waller (2007) by introducing an explicit production function for banks. Banks employ labor resources, hired on a competitive market, to run their operations. In equilibrium this generates a spread between interest rates on loans...

Contemporaneous banking theory appear to understand financial institutions as intermediaries, neglecting some facts featuring modern banking: monetary financial institutions issue claims which function as money; they facilitate payments across agents in the economy over time and space; they...