The article explores how changes in banking systems affect the relationship between bank credit and default rates. Before the financial crisis, banks' financial activities were linked to interest rates, but this connection weakened afterward. The study shows that under a new banking system, the cost of obtaining reserves no longer influences the financial wedge, leading to a disconnect between the wedge and interest rates. This disconnect hinders monetary expansions from causing inflation. Increasing bank capital requirements can reduce inflation, while fiscal policies that lower borrowing costs for non-bank sectors can boost output and lower default risks but may increase inflation. The model explains both pre-pandemic disinflation and post-pandemic inflation using banks' credit creation.