I would add, anyone and everyone who wants to start a bank or a lending institution is allowed that privilege without restriction other than be regulated by fraud laws.The primary confusion, along with needless (and needlessly complex) debates comes from the conflation of BANKS (bailments) with LENDING INSTITUTIONS (deposits on loan)--as if they were one and the same. It does not matter if bailments and loanable deposits occur from the same institution; the behaviors are unique, and need not be--SHOULD NEVER BE--conflated.
With a BANK there would be 100% "reserves", with NOTHING LOANED OUT, nothing put at risk, since money is only being stored, as a BAILMENT, for which bailment fees would be involved.
Continuing, and keeping these two concepts completely separate...
With a purely LENDING INSTITUTION, there need be ZERO RESERVES. Not 100% reserves. ZERO. 100% of what is 'loaned' (placed on deposit, or 'loaned to the LENDING INSTITUTION') can be re-loaned out to others at interest. Where the LENDING INSTITUTION gets its operating capital (or even whether it does) is strictly its affair, like any other business with capital requirements. And since LENDING INSTITUTION behavior is not BANK BEHAVIOR, there need be no requirement for a RIGHT NOW demand for anyone. Lending institutions can do this, of course, but at their own peril. Otherwise, it is abundantly clear that YOUR MONEY IS GONE. LOANED OUT. Make arrangements with the bank if you need any of it back. All of the TIME BALANCE requirements for deposits versus loans would be up to the discretion of the LENDING INSTITUTION. If the LENDING INSTITUTION borrows short and lends long, it may well end up bankrupt. And deservedly so. Their risk, their reward.
LENDING INSTITUTION ENVY
Banks, generally speaking, would prefer NOT to act as a mere vault security guard for YOUR MONEY. It is much more profitable to them if they are permitted to behave as LENDING INSTITUTIONS, which can then serve as a middleman lender, putting other people's money at risk in addition to their own. For that to happen, TITLE TO YOUR MONEY must be relinquished. The moment the BANK gains title to YOUR MONEY, it is NO LONGER YOUR MONEY, and the BANK, for the purposes of that transaction, is NO LONGER BEHAVING AS A BANK, but rather a LENDING INSTITUTION.
"FRACTIONAL RESERVE BANKING" is therefore a grotesque misnomer, as it conflates BANKING with LENDING INSTITUTIONS. With the aid of the courts (beginning with England) the de facto assumption for everyone is that, unless explicitly stated otherwise, NO DEPOSITS are considered bailments. ALL DEPOSITS are considered loans to the LENDING INSTUTITION (no real banking involved)--with title of ALL moneys transferred to the bank and put at risk from the moment of deposit. There is a further conflation and blending of the LENDING INSTITUTION'S CAPITAL REQUIREMENTS with the money it is handling -- as if that was all part of some mixed bag that everyone else needed to be concerned about, but that's another story.
Contrary to what many FRB-defending nut-brains claim, the general public is NOT generally aware of how banking and finance works, or the Very Important Differences between BANKS and LENDING INSTITUTIONS, regardless how much the public is "made aware", whether it be by bold notices or fine print. They are certainly not aware that money on deposit is not truly "theirs". Point to anyone's account balance on their statement, and ask them WHO OWNS THAT BALANCE? Ask them if they understand that "their" money is not really theirs, let alone is it kept on premises or in a vault somewhere. Go ahead and condescend to them, as you show off your semantic preciseness, and explain to the average depositor that they "OWN" only a claim on the bank, but that their money is not technically "THEIRS" any more. Explain to them they don't actually receive TITLE to their money until it is physically returned to them by the bank. To the majority of individuals it won't matter. The idea that their deposit is nothing but an IOU to a debtor bank that borrowed from them, and holds complete title to their money, does not even compute. Most are easily double-talked with reality-obfuscating language. The language says one thing, while the USUAL BEHAVIOR says the opposite, based on the USUAL REALITY of the RIGHT NOW demand claim that each depositor has on whatever is ON (not "IN") their account.
And there's another part of the semantics verbal shell game played by LENDING INSTITUTIONS. You don't have MONEY "IN" YOUR ACCOUNT. There is nothing "IN" about it, any more than you have money "IN" A RECEIPT. A positive account balance with a LENDING INSTITUTION is nothing more than a STATEMENT OF DEBT. The actual money represented by that debt is not "IN" your anything-at-all. It is elsewhere.
So now that all banks have become LENDING INSTITUTIONS which are pretending to be banks, and behaving in a way that IMPLIES that all deposits are bailments, while EXPLICITLY treating them as at-risk loans, the only thing left is to make sure that all depositors are duly warned in legalese and financial industry double-talk. And for most depositors, an FDIC guarantee is all they need to hear. For all intents and purposes, LENDING INSTITUTION = BANK.
Now that ALL NEW CURRENCY comes only through banks, and ALL EXISTING CURRENCY is also channeled through banks, we can roll up our sleeves as the vast majority of currency is pooled into a massive risk network. Individuals NO LONGER DETERMINE what is a bailment and what is a deposit, but since they have all been given a RIGHT NOW CLAIM to WHAT IS NOT THEIR MONEY -- it is now up to the banking system to determine how much to "HOLD IN RESERVE" so that the entire insolvent, bankrupt system doesn't get caught with its pants down.
SOLUTION: END THE PRESUMPTION THAT BAILMENTS ARE DEPOSITS. Let banks be banks, with one set of rules (100% RESERVES, FEES CHARGED), and let lending institutions be lending institutions. No "fractional reserve lending" even required. ZERO RESERVES, INTEREST CHARGED AND PAID OUT. Then the lending institutions would be free to write their own rules, balancing their own time requirements, with NOBODY outside their PRIVATE financial arrangements or debt instruments--all of which are fully understood by everyone--on the hook for anything at all.
Do that, and there is no longer such a thing as a "run on the bank". You can't "run" on a LENDING INSTITUTION. You're bound by a contract. If they screw up, that institution might fail, and if it's fraudulent, people can go to prison. There can be "run" on a BANK, but no need, because a BANK really does just store money that you don't want to put at risk for a fee. If it's not there, guaranteed someone will go to prison, because that truly is fraud.
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