Full-reserve banking, also known as 100% reserve banking, refers to a banking practice in which the full amount of each depositor's funds is kept in reserve, as cash, ready for immediate withdrawal on demand. In other words, funds deposited in checking accounts or demand deposits would not be loaned out by the bank because the depositor has the legal right to withdraw their funds immediately upon demand. Some proposals for full reserve banking systems do not place such restrictions on deposits that are not payable on demand, for example time deposits or savings accounts.
Full-reserve banking was practiced briefly by the Bank of Amsterdam in the early 1600's but has never supplanted fractional reserve banking. Proposals for full-reserve banking have been made from time to time by various economists, including Irving Fisher, Milton Friedman, Murray Rothbard, and Henry Simons. These proposals have received little attention or support.
Read more about Full-reserve Banking: Debate Over Full-reserve Banking, The Case For Full Reserve, The Case Against Full Reserve
Famous quotes containing the word banking:
“One of the reforms to be carried out during the incoming administration is a change in our monetary and banking laws, so as to secure greater elasticity in the forms of currency available for trade and to prevent the limitations of law from operating to increase the embarrassment of a financial panic.”
—William Howard Taft (1857–1930)