alternatehistory.com

Fractional reserve banking is a very simple idea: A bank decides to lend out money multiple times, relying on the fact that it's extremely rare for all the customers to demand all their money at the same time, so they pretty well never have to actually have all the relevant funds in their coffers at once. But it couldn't exist until modern banknotes came into existence and became common and popular means of exchange, which people routinely circulated without going back to the bank between exchanges. So, let's suppose that several banks come up with fractional reserves banking, but it tends to blow up in their faces. A large percentage of the time, banks do get hit with runs, and so the relevant governments pass laws requiring that all banks must have at all times enough funds on hand to satisfy all of their demand obligations. Please note the exact terminology: Demand obligations are not term obligations. So, if such laws are passed in enough places that fractional reserve banking just doesn't catch on, it remains regarded as a dubious and extremely risky business practice even where it's legal, what would be the likely economic consequences?
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