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The Hubris of Hybrids

Author

Listed:
  • Philipp Bagus

    () (Universidad Rey Juan Carlos)

  • David Howden

    () (St. Louis University – Madrid Campus)

  • Amadeus Gabriel

    () (Groupe Sup de Co La Rochelle)

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?”

Suggested Citation

  • Philipp Bagus & David Howden & Amadeus Gabriel, 2017. "The Hubris of Hybrids," Journal of Business Ethics, Springer, vol. 145(2), pages 373-382, October.
  • Handle: RePEc:kap:jbuset:v:145:y:2017:i:2:d:10.1007_s10551-015-2884-x
    DOI: 10.1007/s10551-015-2884-x
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    References listed on IDEAS

    as
    1. Philipp Bagus & David Howden & Amadeus Gabriel, 2015. "Oil and Water Do Not Mix, or: Aliud Est Credere, Aliud Deponere," Journal of Business Ethics, Springer, vol. 128(1), pages 197-206, April.
    2. Williams, Jeffrey C, 1984. "Fractional Reserve Banking in Grain," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 16(4), pages 488-496, November.
    3. Philipp Bagus & David Howden & Walter Block, 2013. "Deposits, Loans, and Banking: Clarifying the Debate," American Journal of Economics and Sociology, Wiley Blackwell, vol. 72(3), pages 627-644, July.
    4. Philipp Bagus & David Howden, 2009. "The Legitimacy of Loan Maturity Mismatching: A Risky, but not Fraudulent, Undertaking," Journal of Business Ethics, Springer, vol. 90(3), pages 399-406, December.
    5. Nicolás Cachanosky, 2011. "A Comment on Barnett and Block on Time Deposit and Bagus and Howden on Loan Maturity Mismatching," Journal of Business Ethics, Springer, vol. 104(2), pages 219-221, December.
    6. Bagus, Philipp & Howden, David, 2013. "Some Ethical Dilemmas with Modern Banking," MPRA Paper 79599, University Library of Munich, Germany.
    7. Philipp Bagus & David Howden, 2012. "The Continuing Continuum Problem of Deposits and Loans," Journal of Business Ethics, Springer, vol. 106(3), pages 295-300, March.
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    Cited by:

    1. Van Den Hauwe, Ludwig, 2017. "Monetary Constitutionalism: Some Recent Developments," MPRA Paper 83052, University Library of Munich, Germany.

    More about this item

    Keywords

    100 % reserve requirement; Banking; Demand deposits; Fractional-reserve banking; Fraud;

    JEL classification:

    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

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