Activity

the system of 'fractional reserve banking', under which banks create deposits to finance risky lending and so have insufficient safe cash reserves to back their deposits. The elimination of fractional reserve banking was a proposal put forward in 1933 as the 'Chicago Plan'.

[...] each type of asset is given a risk weight, agreed by international regulators, and this is used to calculate the overall amount of equity a bank must issue. Mortgage lending, for example, was thought on the basis of past experience to be relatively safe, and was given a low risk weight. Sover…

[...] The pretence that the illiquid real assets of an economy--the factories, capital equipment, houses and offices--can suddenly be converted into money or liquidity is the essence of the alchemy of the present system. Banks and other financial intermediaries will always try to finance illiquid a…

[...] For a society to base its financial system on alchemy is a poor advertisement for its rationality. The key to ending the alchemy is to ensure that the risks involved in money and banking are correctly identified and borne by those who enjoy the benefits from our financial system.