Profit realization, Securitization, Commercial banking, Investment banking, Profit led, Wage led, Effective demand, Financialisation
The paper generalizes the principle of effective demand to incorporate banking and finance as two distinct sectors. The traditional commercial banking sector is regulated and the modern shadow banking sector is mostly an unregulated provider of financial services. Through a stylized model the interconnectedness between the two sectors is analyzed. The analysis shows how an almost infinite supply side capacity of finance is created and explores its relation to the level of aggregate demand in the real economy. The impact of finance on the real economy is explored in both profit and wage led regimes at different levels of interconnectedness between commercial and investment banking.