Contractual Fractional Reserve Banking

[leonidia]

@Ivan Ivanov

If I want to hand $100 to a bank that will keep $10 on hand, and lend out $90 at interest, and reward me with some of that interest, that is between me and the bank.

Thing is, this isn’t how fractional reserve banks work. They not only lend out the $90, they also allow others to lay claim your $10 that still are in the reserves. Any contract that wouldn’t try to make this kind of institution look like a bank, rather then a gambling house, would be self-contradictory.

Actually, if you go to a bank and put $100 in a demand account, and they lend out $90 (assuming a 10% reserve), that $90 ends up in someone else’s account. So there are two claims: one on the $90 and the other on the original $100. Then if 90% of that $90 is lent out, there are now three claims: on $81, $90 and $100. If the process is repeated often enough, there are numerous claims which total up to approximately $1000. (the original $100 + $900 in loans)