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The Hubris of Hybrids

Author

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  • Bagus, Philipp
  • Howden, David
  • Gabriel, Amadeus

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 (forthcoming) as we clarify our (Bagus, Howden and Gabriel 2015) 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

  • Bagus, Philipp & Howden, David & Gabriel, Amadeus, 2017. "The Hubris of Hybrids," MPRA Paper 84832, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:84832
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    File URL: https://mpra.ub.uni-muenchen.de/84832/1/MPRA_paper_84832.pdf
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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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