Increasing the Productivity of Bank Loans

Kevin Cox
3 min readMay 3, 2023


Bank Loans at any interest rate are expensive. They lead to high inflation and are unnecessarily discriminatory and inequitable. However, they can be halved in cost, address inflation, and be available to all.

One measure of the monetary system's productivity is the money loaned divided by the money repaid under the constraints of price stability, low inflation rates, universal access, and equity.

The Minimum Cost to Create Money

Money is created by Banks issuing loans and the borrower repaying the loan. The cost of creating the money is the difference between the amount of the loan and the amount repaid. The cost depends on the interest rate and how long it takes to repay the loan.

If a bank makes a loan and is repaid the next day, the cost is small as there is only a small interest charge plus the cost of preparing the loan and issuing the money. The faster loans are repaid, the lower the risk.

A constraint on money creation is that there has to be a profit to justify the creation. Otherwise, the bank will go broke as not all loans are repaid, and depositors will lose their money.

When the borrower makes a periodic repayment to repay the loan, the Bank realises their profit, and they keep it all. The profit is not shared with the borrower even though the borrower had to work to earn the money to pay the interest. This is unfair as the Bank gets paid for the borrower’s work. It is unearned income and breaks the rule of reciprocity and fair exchange.

What is fair is for the Bank to share the profit with each repayment by reducing the loan amount by half the profit. The Bank still gets all its money back plus the same interest. It does not get the borrower’s share of the profits.

Sharing increases loan productivity, measured by the fewer repayments required to repay a loan, or if the loan is paid at the same rate, it is paid in less time.

An Example of a 50% productivity improvement

Increased Productivity with Sharing

The creation of money with Bank loans is not intuitive. How can money be created out of thin air? Of course, it isn’t, as it is earned by the borrower who repays the loan from their profits. The borrower has worked to create a profit while the Bank has taken a risk that the borrower would not do the work needed. It is fair that borrowers share in the profits from creating new money. In Australia, 100% of the profit goes to the lender. Changing it to 50% is something the Reserve Bank could do with all inter-bank lending, and the effect would ripple through the economy. Individual Banks could do it with shareholder approval. Community Banks owned by depositors should do it.

Sharing will increase the productivity of Capital and help prevent the maldistribution of wealth. The approach will spread and be adopted throughout the finance industry because it is more productive and reduces the cost of loans without changing interest rates. It increases productivity by increasing the speed of investment.

The Emergent Properties of an Efficient Monetary System

The constraints on creating money are:

  • Stable Prices
  • Near-zero inflation
  • Universal Access to New Money
  • Equity in Access

Sharing will produce a minimum-cost system with price stability, near-zero inflation rates, universal access to new money, and equity in access. Depositors will receive higher interest payments, and borrowers will have fewer repayments. Bank shareholders can still earn the same amount by making more loans.



Kevin Cox

Kevin works on empowering individuals within local communities to rid the economy of unearned income.