[GJM] Which Types of Banks do not use "Fractional Reserve Banking?"

[chris cook]

Robert

It is necessary to distinguish between deposit taking institutions - such as Credit Unions - which do not create Credit on the basis of an amount of regulatory Capital, and "Credit Institutions", which do.

It is this latter activity of credit creation which is known as "Fractional Reserve Banking".

JAK Bank of Sweden is, as I understand it, a deposit taking institution. So called Islamic Banks are not. They create credit in best Fractional Reserve style. The difference with conventional Banks is that Islamic Banks claim to (and sometimes actually do ) "invest" (rather than lend) the money they have have created. Such investments give rise to issues with regulators in relation to the amount of Capital they must set aside to cover them.

Yunus' Grameen Bank is a conventional Credit Institution as far as I know, albeit with an enlightened policy to defaults (ie it doesn't chase defaulters, but in any case, has few defaults because loans are always guaranteed by relatives or friends of the borrower).

Yunus certainly had starting capital which was indeed lent to begin with, but if and when this "morphed" into capital supporting conventional credit creation, I do not know.

You may be interested in this 

http://www.atimes.com/atimes/Global_Economy/JD03Dj04.html

recent article of mine on Peak Credit, published in Asia Times. 

Few people appreciate that the value actually provided by Banks is that of a guarnatee of borrowers' credit, but that is the fact of it. I have already been approached by two investment banks in respect of it, both with big portfolios of subprime debt.

I have ceased to attack the practice of banking on moral or ethical grounds: I simply observe that credit intermediaries, like all other intermediaries in a "Peer to Peer" world, are simply redundant, and will either transform to a future as service providers, or simply wither on the vine.

Best Regards

Chris





> Date: Fri, 2 May 2008 19:12:46 +0100
> From: dharao4 at yahoo.co.uk
> To: discussion at globaljusticemovement.net
> Subject: [GJM] Which Types of Banks do not use "Fractional Reserve Banking?"
> 
> 
> Dear All,
> 
>      I expect Chris Cook would be able to answer this
> question, and if possible list the type of banks
> involved (hopefully). Though most commercial banks
> create money out of thin air there are a tiny minority
> which do not. In other words, they may actually use
> existing money deposited with them. I believe rightly,
> or wrongly this is true of Credit Unions.
> 
> I also recall how Muhammad Yunnus set up his first
> bank to help the poor. He seem to indicate that he had
> some starting capital which could be lent, and paid
> back with interest ofcourse. He did not have it
> created out of thin air. Again light on this would be
> gratefully acknowledged with thanks.
> 
> Robert Searle.
> 
> 
>       __________________________________________________________
> Sent from Yahoo! Mail.
> A Smarter Email http://uk.docs.yahoo.com/nowyoucan.html
> 
> _______________________________________________
> Discussion mailing list
> Discussion at globaljusticemovement.net
> http://globaljusticemovement.net/mailman/listinfo/discussion_globaljusticemovement.net

_________________________________________________________________

All new Live Search at Live.com

http://clk.atdmt.com/UKM/go/msnnkmgl0010000006ukm/direct/01/
-------------- next part --------------
An HTML attachment was scrubbed...
URL: http://globaljusticemovement.net/pipermail/discussion_globaljusticemovement.net/attachments/20080502/400628c0/attachment.html