Safety First: The Deceptive Allure of Full Reserve Banking

Authors

Morgan Ricks

Document Type

Article

Publication Title

University of Chicago Law Review Online

Publication Date

2016

Page Number

113

Keywords

full reserve banking, bank regulation, deposits, physical currency

Disciplines

Banking and Finance Law | Law

Abstract

In Safe Banking, Professor Adam Levitin joins a venerable tradition in the money and banking literature. That tradition, called full reserve banking, has claimed a number of illustrious supporters over the years, including Professors Irving Fisher, Henry Simons, and Milton Friedman. The basic idea of full re­serve banking is seductive in its simplicity: "banks" should own nothing but physical cash. Because a full reserve bank has no in­vestments, it can suffer no investment losses. A run on such a bank would be harmless, because the bank would never fail to meet redemptions (barring any loss or theft of cash). The process of bank money creation, familiar to any student of Economics 101, would go away. Money creation would be exclusively a govern­ment affair; "banks" would be pass-through vehicles, true deposi­tories of currency. Our elaborate system of prudential bank regu­lation and supervision would be needless.

Recommended Citation

Morgan Ricks, Safety First: The Deceptive Allure of Full Reserve Banking University of Chicago Law Review Online. 113 (2016)
Available at: https://scholarship.law.vanderbilt.edu/faculty-publications/917