Form of fractional reserve banking guarantees solvency for member banks
A form of private bank coalition known as a joint-liability arrangement allows banks to engage in fractional reserve banking in such a way that the solvency of each member bank is completely guaranteed, a recent working paper published by the Federal Reserve Bank of Philadelphia shows.
On the Welfare Properties of Fractional Reserve Banking, by Daniel Sanches, shows that a lower reserve ratio usually translates into a higher exchange value of bank liabilities, benefiting the consumers who use
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