Is Full-Reserve Banking the Silver Bullett We’re Looking For?

Infinite Guest doesn’t drop a guest post over at Dealbreaker every day, but when he does I always learn something.

This week he dissects a new paper that takes a fresh look at the “Chicago Plan”, an idea from the post-Depression about how someday fractional-reserve lending would be put out to pasture in favor of full-reserve lending – the salutary economic effects of doing so were too obvious and the Plan’s authors believed it would be inevitable.

Only, it never happened. But should we be revisiting the idea?

Full-reserve banking is mathematically superior to fractional-reserve banking given the right initial conditions of leverage and provided that the right institutions have adequate technology and sufficient incentives to behave properly. Both papers assert that full-reserve banking would smooth out the business cycle, reduce public and private debt and consign banking panics to the dustbin of history. The more recent analysis finds, over and above the claims of its ancestor, that full-reserve banking would eliminate inflation and stimulate economic growth. While reasonable people may quibble, let’s assume for the time being that under the right circumstances they’re dead right about all that. What then?

If you’d like to learn more about how this might work, read the whole thing below:


Rarefied Air (Dealbreaker)


This content, which contains security-related opinions and/or information, is provided for informational purposes only and should not be relied upon in any manner as professional advice, or an endorsement of any practices, products or services. There can be no guarantees or assurances that the views expressed here will be applicable for any particular facts or circumstances, and should not be relied upon in any manner. You should consult your own advisers as to legal, business, tax, and other related matters concerning any investment.

The commentary in this “post” (including any related blog, podcasts, videos, and social media) reflects the personal opinions, viewpoints, and analyses of the Ritholtz Wealth Management employees providing such comments, and should not be regarded the views of Ritholtz Wealth Management LLC. or its respective affiliates or as a description of advisory services provided by Ritholtz Wealth Management or performance returns of any Ritholtz Wealth Management Investments client.

References to any securities or digital assets, or performance data, are for illustrative purposes only and do not constitute an investment recommendation or offer to provide investment advisory services. Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Past performance is not indicative of future results. The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others.

Wealthcast Media, an affiliate of Ritholtz Wealth Management, receives payment from various entities for advertisements in affiliated podcasts, blogs and emails. Inclusion of such advertisements does not constitute or imply endorsement, sponsorship or recommendation thereof, or any affiliation therewith, by the Content Creator or by Ritholtz Wealth Management or any of its employees. Investments in securities involve the risk of loss. For additional advertisement disclaimers see here:

Please see disclosures here.

What's been said:

Discussions found on the web
  1. credit card shop commented on Jan 26

    … [Trackback]

    […] Find More Information here to that Topic: […]