Nick Szabo  🔑

It’s a liquidity mismatch between the assets and liabilities.

Zavan gets it. Drop "fractional" reserves." It's a empty phrase used as a boogeyman argument.

A 100% reserve bank would not have a liquidity mismatch. I’ll continue using the phrase “fractional reserve banking” tyvm

Pierre is right but I think Zavan is right here too. I don't agree Wells is extremely irresponsible. But they are incompetent. Possibly worse. TBD. Upside is some folks at the margin may start saving more & not live paycheck to paycheck.

The real problem with all this, IMHO, is having a central bank. You can't expect a company (banks in this case) to act responsibly if it knows it will be rescued every time it fails. (Central banks cause a bunch of other problems, of course, this is just one of them).

I don't think fractional reserve itself is unethical (if the customers are aware of it), but its ability to survive should be put to the test on a free market of banking, not a central banking system.

Maybe fractional reserve works to a certain point, maybe not, maybe it would work in some situations but not in others, the market would find out, but it can't, because there is no market right now, just a central bank backed oligopoly.