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The very earliest banks didn't do fractional reserve banking so it isn't true to say it is how every bank worked since banks were invented. The first known inst
by freddie_mercury 4y ago
The very earliest banks didn't do fractional reserve banking so it isn't true to say it is how every bank worked since banks were invented. The first known instance of fractional reserve lending was with an medieval Italy but banks have been around since 2000BCE.
You are right that it definitely explains 99.99% of banks in history. But there are a handful of historical examples -- even after "modern banking" began in medieval Italy -- that don't fit. A recent example is The Narrow Bank which was shutdown by the Federal Reserve. But in the past you had things like the Bank of England in 1844 which went to 100% reserves for a period. Or banks under the Louisiana Banking Act of 1842 -- which was why banks in Louisiana were unaffected by the financial crisis of 1857.
- wbl 4y agoSo did Louisiana banks issue loans?
- regpertom 4y agoHow could they issue loans? 10 x 10$ deposits means you can loan 100$? Where as the modern way is more like 100$ in deposits means you can lend out 1000$ because chances are everyone won’t not pay it back? And then can’t you say that since you’ve lent out 1000$ and chances are you’ll get paid back, you’ve basically got 1104.56$ and so can lend out 10k$? And then you bundle those together and sell them to each other depending on what ratio of income to cash you want? Apologies if no one was meant to answer that.
- ta1243 4y agoDoesn't stop a run 10 people put $10 in your bank. You give someone a loan for $50 and leave $50 in the vault. 7 of your customers take $10 out, you are screwed.
- notch898a 4y agoDepends. If they take it out electrically, send it to another bank then it just shows up as debt in a database from bank A to bank B. Cash is dirty and boring nowadays.
- imtringued 4y agoThis doesn't apply to certificates of deposit as depositors agree to not withdraw their money until a specified point in time.
- somenameforme 4y agoEspecially in contemporary times banks make money in an immense amount of ways that don't involve touching customer funds: debit transaction fees, international exchange rate "adjustments", ATM fees, the million 'special processing fee' type fees, and so on. In other countries I've even had to pay a fee when depositing, which was quite odd. Of course this all is going to pale in comparison to the amount that banks make by d̶u̶m̶p̶i̶n̶g̶ ̶c̶o̶n̶s̶u̶m̶e̶r̶ ̶f̶u̶n̶d̶s̶,̶ ̶h̶e̶a̶v̶i̶l̶y̶ ̶l̶e̶v̶e̶r̶a̶g̶e̶d̶,̶ ̶i̶n̶t̶o̶ ̶h̶i̶g̶h̶ ̶r̶i̶s̶k̶ ̶a̶s̶s̶e̶t̶s̶ responsibly investing deposits. But of course banks under '100% deposits maintained' type systems could then engage in more typical behavior with their own funds above and beyond what's made from deposits. Under such a regime no bank would ever be "too big to fail", customer deposits would be 100% guaranteed at all times, and more. In exchange you'd see substantially slower overall economic growth and monetary multiplication, but I'm increasingly convinced that would not have been a bad thing.
- astrange 4y ago> In other countries I've even had to pay a fee when depositing, which was quite odd. That's normal for business banking I think. Trucking cash and coins around isn't free, that stuff is heavy.
- dr_dshiv 4y agoThe Medicis couldn’t loan money at interest— that was usury—so they made money by charging a fee for allowing customers to deposit at one place and have the money available in other locations. That was not considered usury
- lostlogin 4y agoIt’s amazing how long this goes back. ATM transactions fees are stupid high, and now I have someone to blame.
- geysersam 4y agoI don't believe the claim that non-fractional reserve banking would actually slow economic growth. Is real economic growth even determined by anything but technological development? Of course, the economy can be made to "grow" by some slight of hand, like having a high inflation rate while pretending that we don't. Or by depleting natural resources. But that's not the kind of growth we want.
- amoss 4y agoIt helps if you take a deep breath.
- andrepd 4y ago> Where as the modern way is more like 100$ in deposits means you can lend out 1000$ More like 20,000$, but yes.
- freddie_mercury 4y agoYes, they still issued loans. Louisiana banks weren't true "narrow banks" but were much tighter regulated with much higher reserve requirements than other states at the time (or today). This was a reaction to the financial crisis of 1837.
- carlosjobim 4y ago> The very earliest banks didn't do fractional reserve banking I am certain they all did it, but in secrecy. Even when banks stocked grains and not gold.