The Hubris of Hybrids

Philipp Bagus, David Howden and Amadeus Gabriel

MPRA Paper from University Library of Munich, Germany

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 (forthcoming) as we clarify our (Bagus, Howden and Gabriel 2015) 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)
JEL-codes: E5 (search for similar items in EconPapers)
Date: 2017-12-31
New Economics Papers: this item is included in nep-mon
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Citations: View citations in EconPapers (2)

Published in Journal of Business Ethics 145.2(2017): pp. 373-382

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Related works:
Journal Article: The Hubris of Hybrids (2017)
Working Paper: The Hubris of Hybrids (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:84832

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