The Hubris of Hybrids

Philipp Bagus, David Howden () and Amadeus Gabriel ()
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David Howden: St. Louis University – Madrid Campus
Amadeus Gabriel: Groupe Sup de Co La Rochelle

Journal of Business Ethics, 2017, vol. 145, issue 2, No 10, 373-382

Abstract: Abstract In the pages of this journal, a fruitful debate has evolved on the ethical legitimacy of fractional-reserve banking. In this article, we respond to the new arguments raised by Evans (J Bus Ethics, 2014) as we clarify our (Bagus et al. in J Bus Ethics 128:197–206, 2015a) position on the unethical and illegitimate nature of fractional-reserve banking. Fractional-reserve banking is not a recent financial innovation (unlike, e.g., money market mutual funds) but represents a long-standing legal aberration. The co-mingling of two mutually exclusive financial contracts, deposit and loan, confounds the contracting parties’ purposes, intents, rights, and obligations. As a result, it creates unsolvable legal difficulties and ethical dilemmas. While these problems are most evident in the case of a bank run, they also arise when trying to answer the simple question of “who owns a deposit?”

Keywords: 100 % reserve requirement; Banking; Demand deposits; Fractional-reserve banking; Fraud (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (2)

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DOI: 10.1007/s10551-015-2884-x

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