A Comment on Barnett and Block on Time Deposit and Bagus and Howden on Loan Maturity Mismatching

Abstract

In Time Deposits, Dimension, and Fraud (2009), William Barnett and Walter Block argue that by borrowing short and lending long there is an over issuance of property rights. Their article, however, does not fully extend the consequences of their contribution. Once this is done, it becomes clearer that their argument suits a great impediment to banking, becoming a possible reason to support rather than to oppose fractional reserve banking. Bagus and Howden (J Bus Ethics 90(3):399–406, 2009) comment on Barnett and Block (J Bus Ethics 88(4):711–716, 2009), the authors claim that while maintaining the illegitimacy of fractional reserve deposits, borrowing short and lending long it is actually not illegitimate. An extension on Bagus and Howden (2009) will show that their line of argumentation can be applied as a defense of fractional reserve banking as well.

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Notes

  1. 1.

    See footnote 2 in Barnett and Block (2009) for references on the 100% versus fractional reserve banking debate.

  2. 2.

    Because this point is already present in the debate, this article does not deal with this argument.

  3. 3.

    To be more precise, the bondholder will receive the market price of the capital plus interest not yet paid.

References

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Correspondence to Nicolás Cachanosky.

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Cachanosky, N. A Comment on Barnett and Block on Time Deposit and Bagus and Howden on Loan Maturity Mismatching. J Bus Ethics 104, 219–221 (2011). https://doi.org/10.1007/s10551-011-0900-3

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Keywords

  • Time deposits
  • Fractional reserve banking
  • 100 percent reserve requirement
  • Maturity mismatching