The Characterization of the Demand Deposit as a Loan under Fractional Reserve Banking: A Critical Legal Analysis

Mejd Aures Benlala ()
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Mejd Aures Benlala: Department of Economics, University of Batna 1, Algeria.

Perspectives of Law and Public Administration, 2022, vol. 11, issue 4, 638-649

Abstract: Under fractional reserve banking system, banks activity and operations rely primarily on demand deposits, which are often known as current accounts, especially when it comes to granting loans. Consequently, bank deposits are the primary source of ãinexpensiveÓ funding for commercial banks. This article aims to analyze and discuss the widely agreed upon characterization of the demand deposit as a loan contract. Since all today's legal systems consider thedemand deposit a loan contract, this article attempts to challenge this characterization by discussing the arguments and building blocks of the loan theory and examining the essence of both contracts through the lens of law and jurisprudence. The paper concludes that the demand deposit contract cannot be considered a loan contract, with supporting solid arguments from economic and legal perspectives.

Keywords: fractional reserve banking; jurisprudence; demand deposit contract; loan contract; civil law; common law; hybrid legal systems. (search for similar items in EconPapers)
JEL-codes: K12 K15 P40 (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:sja:journl:v:11:y:2022:i:4:p:638-649

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