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

Author

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  • Mejd Aures BENLALA

    (Department of Economics, University of Batna 1, Algeria.)

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.

Suggested Citation

  • Mejd Aures BENLALA, 2022. "The Characterization of the Demand Deposit as a Loan under Fractional Reserve Banking: A Critical Legal Analysis," Perspectives of Law and Public Administration, Societatea de Stiinte Juridice si Administrative (Society of Juridical and Administrative Sciences), vol. 11(4), pages 638-649, December.
    • Handle: RePEc:sja:journl:v:11:y:2022:i:4:p:638-649
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    fractional reserve banking; jurisprudence; demand deposit contract; loan contract; civil law; common law; hybrid legal systems.;
    All these keywords.

    JEL classification:

    • K12 - Law and Economics - - Basic Areas of Law - - - Contract Law
    • K15 - Law and Economics - - Basic Areas of Law - - - Civil Law; Common Law
    • P40 - Political Economy and Comparative Economic Systems - - Other Economic Systems - - - General

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