European Journal of Law and Economics

, Volume 41, Issue 1, pp 243–254 | Cite as

The economic and legal significance of “full” deposit availability

  • Philipp Bagus
  • David Howden


Bank deposits have two characteristics: they are available on demand and at par value. Deposit redemptions face, at least given current technology, a lag between when they are requested and when they are delivered. This fact leads some to argue that as a deposit is not fully available, all deposits are, in fact, loans and that the legal obligation of the depository changes. We argue that this lag does not nullify the original economic intent of the deposit, and hence, does not alter the legal obligations that a depository faces. Deposits must be held safely to ensure that the depositor′s money will be available when an unforeseen event occurs.


Deposit availability Demand deposits Full availability Legal obligations in deposit contracts Safekeeping Fractional reserve banking 

JEL classification

G 21 K10 K20 K40 


  1. Bagehot, W. (1873). Lombard street: A description of the money market. London: H.S. King.Google Scholar
  2. Bagus, P., & Howden, D. (2009). The legitimacy of loan maturity mismatching: A risky, but not fraudulent, undertaking. Journal of Business Ethics, 90(3), 399–406.CrossRefGoogle Scholar
  3. Bagus, P., & Howden, D. (2011). Fractional reserve free banking: Some quibbles. The Quarterly Journal of Austrian Economics, 13(4), 29–55.Google Scholar
  4. Bagus, P., & Howden, D. (2012a). Still unanswered quibbles with fractional reserve free banking. Review of Austrian Economics, 25(2), 159–171.CrossRefGoogle Scholar
  5. Bagus, P., & Howden, D. (2012b). The continuing continuum problem of deposits and loans. Journal of Business Ethics, 106(3), 295–300.CrossRefGoogle Scholar
  6. Bagus, P., Howden, D., & Block, W. E. (forthcoming). Deposits, loans and banking: Clarifying the debate. American Journal of Economics and Sociology.Google Scholar
  7. Barnett, W., I. I., & Block, W. (2005). In defense of fiduciary media: A comment; or, what’s wrong with “clown” or play money? Quarterly Journal of Austrian Economics, 8(2), 55–69.CrossRefGoogle Scholar
  8. Barnett, W., & Block, W. E. (2008). Continuums. Etica & Politica, 10(1), 151–166.Google Scholar
  9. Barnett, W., & Block, W. E. (2011). Rejoinder to Bagus and Howden on borrowing short and lending long. The Journal of Business Ethics, 100(2), 229–238.CrossRefGoogle Scholar
  10. Benston, G. J., & Kaufman, G. G. (1996). The appropriate role of bank regulation. The Economic Journal, 106(436), 688–697.CrossRefGoogle Scholar
  11. Benston, G. J., & Smith, C. W. (1976). A transactions cost approach to the theory of financial intermediation. The Journal of Finance, 31(2), Papers and Proceedings of the thirty-fourth annual meeting of the American Finance Association Dallas, Texas December 28–30, 1975: 215–231.Google Scholar
  12. Bhattacharya, S., Boot, A. W. A., & Thakor, A. V. (1998). The economics of bank regulation. Journal of Money, Credit and Banking, 30(4), 745–770.CrossRefGoogle Scholar
  13. Diamond, D. W. (1984). Financial intermediation and delegated monitoring. Review of Economic Studies, 51(3), 393–414.CrossRefGoogle Scholar
  14. Diamond, D. W., & Dybvig, P. H. (1983). Bank runs, deposit insurance, and liquidity. Journal of Political Economy, 91(3), 401–419.CrossRefGoogle Scholar
  15. Dowd, K. (1989). The state and the monetary system. New York: Saint Martin’s Press.Google Scholar
  16. Eisenbeis, R. A., & Wall L. D. (2002). Reforming deposit insurance and FDICIA. Federal Reserve Bank of Atlanta Economic Review, first quarter: 1–16.Google Scholar
  17. Ely, B. (1999). Regulatory moral hazard: The real moral hazard in federal deposit insurance. The Independent Review, 4(2), 241–254.Google Scholar
  18. Glasner, D. (1989). Free banking and monetary reform. Cambridge: Cambridge University Press.CrossRefGoogle Scholar
  19. Goodhart, C. A. E. (1988). The evolution of central banks. Cambridge, MA: The MIT Press.Google Scholar
  20. Hayek, F. A. (1973). Law, legislation and liberty: Volume 1- rules and order. Chicago: University of Chicago Press.Google Scholar
  21. Hoppe, H.-H. (1994). How is fiat money possible? Or, the devolution of money and credit. Review of Austrian Economics, 7(2), 49–74.CrossRefGoogle Scholar
  22. Hoppe, H.-H., with Guido Hülsmann and Walter Block. (1998). Against fiduciary media. Quarterly Journal of Austrian Economics 1(1): 19–50.Google Scholar
  23. Huerta de Soto, J. H. (2006). Money, bank credit and economic cycles. Auburn, AL: Ludwig von Mises Institute.Google Scholar
  24. Hülsmann, J. G. (1996). Free banking and the free bankers. Review of Austrian Economics, 9(1), 3–53.CrossRefGoogle Scholar
  25. Hülsmann, J. G. (2008). The ethics of money production. Auburn, AL.: Ludwig von Mises Institute.Google Scholar
  26. Kaufman, G. G. (1996). Bank failures, systemic risk, and bank regulation. Cato Journal, 16(1), 17–45.Google Scholar
  27. Kaufman, G. G. (1999). Do Lender of Last Resort Operations Require Bank Regulation? Presented at the conference “Is Bank Regulation Necessary?”,. Washington D.C: American Enterprise Institution.Google Scholar
  28. Kotlikoff, L. J. (2010). Jimmy Stewart is dead: Ending the world’s ongoing financial plague with limited purpose banking. New York: Wiley.Google Scholar
  29. Leoni, B. (1961). Freedom and the law. Princeton, N.J.: D. Van Nostrand Company.Google Scholar
  30. McCoy, P. A. (2007). The moral hazard implications of deposit insurance: Theory and evidence. Presented at the seminar on current developments in monetary and financial law, Washington D.C., October 23–27, 2006.Google Scholar
  31. Mises, L. von. ([1949] 1998). Human action: A treatise on economics. Auburn, AL: Ludwig von Mises Institute.Google Scholar
  32. O’Driscoll, G. P. (2009). Money and the present crisis. Cato Journal, 29(1), 167–186.Google Scholar
  33. O’Driscoll, G. P. (2010). “Jimmy Stewart is dead: Ending the world’s ongoing financial plague with limited purpose banking”. By Laurence J. Kotlikoff. Cato Journal, 30(3), 541–546.Google Scholar
  34. O’Driscoll, G. P., & Hoskins, L. (2006). The case for market-based regulation. Cato Journal, 26(3), 469–487.Google Scholar
  35. Rothbard, M. N. ([1962] 2001). Man, economy, and state. Auburn, AL: Ludwig von Mises Institute.Google Scholar
  36. Rozeff, M. S. (2010). Rothbard on fractional reserve banking: A critique. The Independent Review, 14(4), 497–512.Google Scholar
  37. Selgin, G. (1988). The theory of free banking: Money supply under competitive note issue. New Jersey: Rowman & Littlefield.Google Scholar
  38. Selgin, G. A., & White, L. H. (1996). In defense of fiduciary media: Or, we are not devo(lutionists), we are misesians! Review of Austrian Economics, 9(2), 83–107.CrossRefGoogle Scholar
  39. Selgin, G. A., & White, L. H. (1997). The option clause in Scottish banking. Journal of Money, Banking and Credit, 29(2), 270–273.CrossRefGoogle Scholar
  40. Smith, A. (1776). An inquiry into the nature and causes of the wealth of nations. London: W. Strahan and T. Cadhell in the Strand.Google Scholar
  41. Thies, C. F., & Gerlowski, D. A. (1989). Deposit insurance: A history of failure. Cato Journal, 8(3), 677–693.Google Scholar
  42. White, L. H. (1984). Free banking in britain: Theory, experience and debate, 1800–1845. London and New York: Cambridge University Press.Google Scholar
  43. White, L. H. (1989). Competition and currency: Essays on free banking and money. New York: New York University Press.Google Scholar
  44. Yeager, L. B. (1997). The fluttering veil: Essays on monetary disequilibrium. In George Selgin (ed.) Indianapolis: Liberty Fund.Google Scholar
  45. Yeager, L. B. (2010). Bank reserves: A dispute over words and classification. Review of Austrian Economics, 23(2), 183–191.CrossRefGoogle Scholar

Copyright information

© Springer Science+Business Media, LLC 2012

Authors and Affiliations

  1. 1.Department of Applied Economics IUniversidad Rey Juan CarlosMadridSpain
  2. 2.Department of Business and Social SciencesSt. Louis University—Madrid CampusMadridSpain

Personalised recommendations