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The Economic and Legal Significance of “Full” Deposit Availability

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  • Bagus, Philipp
  • Howden, David

Abstract

Bank deposits have two characteristics: they are available on demand and at par value. Deposit redemptions face, at least given current technology, a lag between when they are requested and when they are delivered. This fact leads some to argue that as a deposit is not fully available, all deposits are, in fact, loans and that the legal obligation of the bank changes. We argue that this lag does not nullify the original economic intent of the deposit, and hence, does not alter the legal obligations that a depository faces. Deposits must be held safely to ensure that the depositor´s money will be available when an unforeseen event occurs.

Suggested Citation

  • Bagus, Philipp & Howden, David, 2016. "The Economic and Legal Significance of “Full” Deposit Availability," MPRA Paper 79804, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:79804
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    References listed on IDEAS

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    1. Robert A. Eisenbeis & Larry D. Wall, 2002. "Reforming deposit insurance and FDICIA," Economic Review, Federal Reserve Bank of Atlanta, issue Q1, pages 1-16.
    2. Bagus, Philipp & Howden, David, 2011. "Unanswered Quibbles with Fractional Reserve Free Banking," MPRA Paper 79594, University Library of Munich, Germany.
    3. Leland Yeager, 2010. "Bank reserves: A dispute over words and classification," The Review of Austrian Economics, Springer;Society for the Development of Austrian Economics, vol. 23(2), pages 183-191, June.
    4. George G. Kaufman, 1996. "Bank failures, systemic risk, and bank regulation," Working Paper Series, Issues in Financial Regulation WP-96-1, Federal Reserve Bank of Chicago.
    5. Selgin, George & White, Lawrence H, 1997. "The Option Clause in Scottish Banking: A Comment," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 29(2), pages 270-273, May.
    6. Douglas W. Diamond & Philip H. Dybvig, 2000. "Bank runs, deposit insurance, and liquidity," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Win, pages 14-23.
    7. William Barnett & Walter Block, 2011. "Rejoinder to Bagus and Howden on Borrowing Short and Lending Long," Journal of Business Ethics, Springer, vol. 100(2), pages 229-238, May.
    8. Benston, George J & Kaufman, George G, 1996. "The Appropriate Role of Bank Regulation," Economic Journal, Royal Economic Society, vol. 106(436), pages 688-697, May.
    9. Bhattacharya, Sudipto & Boot, Arnoud W A & Thakor, Anjan V, 1998. "The Economics of Bank Regulation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 30(4), pages 745-770, November.
    10. Douglas W. Diamond, 1984. "Financial Intermediation and Delegated Monitoring," Review of Economic Studies, Oxford University Press, vol. 51(3), pages 393-414.
    11. Gerald P. O'Driscoll Jr. & Lee Hoskins, 2006. "The Case for Market-Based Regulation," Cato Journal, Cato Journal, Cato Institute, vol. 26(3), pages 469-487, Fall.
    12. 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.
    13. Philipp Bagus & David Howden, 2012. "Still unanswered quibbles with fractional reserve free banking," The Review of Austrian Economics, Springer;Society for the Development of Austrian Economics, vol. 25(2), pages 159-171, June.
    14. Hoppe, Hans-Hermann, 1994. "How Is Fiat Money Possible?--or, the Devolution of Money and Credit," The Review of Austrian Economics, Springer;Society for the Development of Austrian Economics, vol. 7(2), pages 49-74.
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    Cited by:

    1. Philipp Bagus & David Howden & Jesús Huerta de Soto Ballester, 2018. "Entrepreneurial Error Does Not Equal Market Failure," Journal of Business Ethics, Springer, vol. 149(2), pages 433-441, May.

    More about this item

    Keywords

    Deposit availability; Demand deposits; Full availability; Legal obligations in deposit contracts; Safekeeping; Fractional reserve banking;

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • K10 - Law and Economics - - Basic Areas of Law - - - General (Constitutional Law)
    • K20 - Law and Economics - - Regulation and Business Law - - - General
    • K40 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - General

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