Chapter 13 Curiosities

If any bank is loaning out deposits, it is susceptible to a bank run. If the bank only loans at 90% of reserves, it is very unlikely a bank run will occur. If a bank has only has 1% of reserves, any small event where people would need to withdraw deposits could cause a bank run. The Federal Reserve is one way the government has tried to prevent bank runs. The Fed is an entity that can always be a lender of last resort to make sure banks have money in reserves, at least in the short term. The government also created the FDIC to insure deposits. This insurance means that folks are fine if a bank doesn't have their deposits, because the feds will pay them out anyways. My preferred change would be for the fractional banking to be labeled as what it is, fraud, and outlawed. This would mean that banks would have to keep 100% of deposits on reserve and find some other way of earning a profit, whether that is fees or some other business model.