The Chicago Plan - Full Reserve Banking Without Eliminating the Federal Reserve

[LibertyIn08]

As long as people believe the government can cover an insolvent FDIC's obligations when banks fail you mean...

Bingo. Had the Fed and the FDIC not managed to work the Treasury to auction some banks during the crisis, the FDIC would have lacked the funds to fully cover its obligations. IndyMac had put a large strain on the FDIC and WaMu's potential failure alone threatened to wipe out the rest of the fund.

[SpreadOfLiberty]

In a way we already have this, because with the lender of last resort there is always a reserve.

Keep in mind that if this was in place, it would not have a bearing on how much money was printed.

[LibertyIn08]

In a way we already have this, because with the lender of last resort there is always a reserve.

Keep in mind that if this was in place, it would not have a bearing on how much money was printed.

Yes and no. Under the current system, any credit actions have monetary impacts and vice-versa. The "full reserve" you allude to only works via monetary mechanisms. A full reverse system by mandate doesn't necessitate open market operations or fed lending.

I'm not quite sure I agree with the second point. All else equal, a 100% reserve system must restrict the number of dollars that are printed (even if only at the replacement rate) as the money stock is reduced via the reduction in the multiplier.

[LibForestPaul]

It would be nice to have some chartered full deposit banks with legal tender laws repealed. Gold/silver would instantly become money and people would actually trade said capital for labor. Hello freedom.

it would be nice if guns stopped being pointed at my head and my time an my skills were left for my enjoyment.

[adams101]

FDIC DID LACK THE FUNDS. We simply did not audit the Big 5 banks. They tap danced around and instead of marching in a slew of independent auditors the politicians let them "self assess" their own books and give Congress a "stress test" report. They also refused to include the derivative exposure in the solvency investigations.

Bank of America`s total credit exposure to derivatives was 179 percent of its risk-based capital; Citibank`s was 278 percent; JPMorgan Chase`s, 382 percent; and HSBC America`s, 550 percent. It gets even worse: Goldman Sachs began reporting as a commercial bank, revealing an alarming total credit exposure of 1,056 percent, or more than ten times its capital!

There is no way that 16 of the top 19 banks in the US could have survived a true audit.... nor could they now. It is the dirty little secret nobody in Washington wants to talk about. As long as nothing is audited and we don't assess the derivatives you can limp along pretending to be in business forever.... as we are witnessing.

This is what happens when you let your government run a $1.5 trillion dollar a year deficit to the same bankers they are supposed to regulate, audit and protect us from. Government debt is corruption in its purest form. Our government is a "money junkie" that cannot be trusted in the slightest bit.

[LibertyIn08]

FDIC DID LACK THE FUNDS. We simply did not audit the Big 5 banks. They tap danced around and instead of marching in a slew of independent auditors the politicians let them "self assess" their own books and give Congress a "stress test" report. They also refused to include the derivative exposure in the solvency investigations.

Bank of America`s total credit exposure to derivatives was 179 percent of its risk-based capital; Citibank`s was 278 percent; JPMorgan Chase`s, 382 percent; and HSBC America`s, 550 percent. It gets even worse: Goldman Sachs began reporting as a commercial bank, revealing an alarming total credit exposure of 1,056 percent, or more than ten times its capital!

There is no way that 16 of the top 19 banks in the US could have survived a true audit.... nor could they now. It is the dirty little secret nobody in Washington wants to talk about. As long as nothing is audited and we don't assess the derivatives you can limp along pretending to be in business forever.... as we are witnessing.

This is what happens when you let your government run a $1.5 trillion dollar a year deficit to the same bankers they are supposed to regulate, audit and protect us from. Government debt is corruption in its purest form. Our government is a "money junkie" that cannot be trusted in the slightest bit.

Slow down there. The FDIC only lacked the funds if the banks you listed had failed. They didn't. We bailed them out. (I'm not saying this was good policy.)

The whole point of an insurance pool is that you're betting that very rare long tail risks never occur. If everyone's house suddenly caught on fire, the fire insurers would not be able to cover the loses. Most investors wouldn't consider insurance companies functionally insolvent or short of funds in spite of this.

Again, whether the policy was good or not is irrelevant to the discussion of whether the FDIC was solvent at this point in time. It was. Could it have handled another large failure? Absolutely not. It didn't have to, in this case.

[rpwi]

I like the Chicago plan and it deserves serious consideration by the public.

Personally, if I were to reform the system I would take a slightly different tack. Instead of focusing on forcing banks to keep 100% on hand for demand deposits which is problematic because banks will switch to near-deposits...I would question whether we even need the the bank as we know it now if they aren't lending deposits.

A good percentage of the monetary base is electronic...but ONLY banks can access this. This gives them an unfair market function that you and I don't have, and they are wasteful middeman. I vote...let us have direct deposits at the Fed (or better yet the treasury) instead of the indirect deposits we have now.

Without lending...there is no need for a convulated banking system. The treasury could allow you to open direct deposits with them, you could write checks from these accounts and they could issue debit cards that didn't have transaction fees.

Allowing the public direct access to electronic MB is how we'll get true reform.