Reply To: Bank Reserves


Thank you so much for your responses! You’ve been invaluable so far in my ongoing process of learning. There’s only so much one can get out of listening to lectures or reading, especially working full time, so I really appreciate your efforts.

I have some more questions:

1. This is my main, most nagging question. Would it be possible for there to be credit at all (at least from banks) in a 100% reserve system? I’m displaying my ignorance, but that’s why I’m here.

If banks have to keep full reserves, how would they be able to make loans?

I can see how runs would be a check against reckless lending and inflation in a specie based fractional reserve system, and how in such a system lending is still possible, but how would that work in a full reserve system? Would credit markets be possible?

2. What are the consumer goods ratings companies you are referring to?

3. Could bank runs occur in both fractional and full reserve hard money systems?

4. Could bank runs happen for no reason, or just out of nowhere, threatening the stability of our financial system? I’m not saying out system is inherently stable now, but what are the chances of something like that happening?

5. What caused the bank runs that caused panics prior to and leading to the establishment of the Fed? What’s the Austrian response to the critics who say that that would just happen again if we followed Rothbard or others?

6. Is there a standard (or better word:RELIABLE) metric used to measure the severity of a banking crisis? Is the percentage of losses relative to GDP the best way to measure this? Would such a metric be a reliable tool to measure the comparative severities of the banking crises/depressions before and after the Fed?

Thank you very much again for your time.