IDEAS home Printed from https://ideas.repec.org/a/sja/journl/v11y2022i4p638-649.html
   My bibliography  Save this article

The Characterization of the Demand Deposit as a Loan under Fractional Reserve Banking: A Critical Legal Analysis

Author

Listed:
  • Mejd Aures BENLALA

    (Department of Economics, University of Batna 1, Algeria.)

Abstract

Under fractional reserve banking system, banks activity and operations rely primarily on demand deposits, which are often known as current accounts, especially when it comes to granting loans. Consequently, bank deposits are the primary source of ãinexpensiveÓ funding for commercial banks. This article aims to analyze and discuss the widely agreed upon characterization of the demand deposit as a loan contract. Since all today's legal systems consider thedemand deposit a loan contract, this article attempts to challenge this characterization by discussing the arguments and building blocks of the loan theory and examining the essence of both contracts through the lens of law and jurisprudence. The paper concludes that the demand deposit contract cannot be considered a loan contract, with supporting solid arguments from economic and legal perspectives.

Suggested Citation

  • Mejd Aures BENLALA, 2022. "The Characterization of the Demand Deposit as a Loan under Fractional Reserve Banking: A Critical Legal Analysis," Perspectives of Law and Public Administration, Societatea de Stiinte Juridice si Administrative (Society of Juridical and Administrative Sciences), vol. 11(4), pages 638-649, December.
    • Handle: RePEc:sja:journl:v:11:y:2022:i:4:p:638-649
    as

    Download full text from publisher

    File URL: https://adjuris.ro/revista/articole/An11nr4/16.%20M.A.%20Benlala.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Raúl Barroso & Donald N'Gatta & Gaizka Ormazabal, 2022. "Individual Wealth Taxes and Corporate Payouts," Post-Print hal-03975042, HAL.
    2. Albers, Thilo & Bartels, Charlotte & Schularick, Moritz, 2022. "Wealth and its Distribution in Germany, 1895-2018," CEPR Discussion Papers 17269, C.E.P.R. Discussion Papers.
    3. An, Li & Lou, Dong & Shi, Donghui, 2022. "Wealth redistribution in bubbles and crashes," Journal of Monetary Economics, Elsevier, vol. 126(C), pages 134-153.
    4. Philipp Bagus & David Howden, 2009. "The Legitimacy of Loan Maturity Mismatching: A Risky, but not Fraudulent, Undertaking," Journal of Business Ethics, Springer, vol. 90(3), pages 399-406, December.
    5. Cranston, Ross, 2002. "Principles of Banking Law," OUP Catalogue, Oxford University Press, edition 2, number 9780199253319.
    6. Jiameng Ma & Fenglong Xiao & Yue Qiu & Zongyu Xu, 2022. "How R&D investment affects bondholder wealth?," Asia-Pacific Journal of Accounting & Economics, Taylor & Francis Journals, vol. 29(2), pages 304-328, March.
    7. Ellinger, E.P. & Lomnicka, E. & Hare, C., 2011. "Ellinger's Modern Banking Law," OUP Catalogue, Oxford University Press, edition 5, number 9780199232093.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Abdul Karim Aldohni, 2018. "Is Ethical Finance the Answer to the Ills of the UK Financial Market? A Post-Crisis Analysis," Journal of Business Ethics, Springer, vol. 151(1), pages 265-278, August.
    2. Malavika Nair, 2015. "Fractional Reserve Banking, Client Collaboration, and Fraud," Journal of Business Ethics, Springer, vol. 130(1), pages 85-92, August.
    3. Philipp Bagus & David Howden, 2016. "The economic and legal significance of “full” deposit availability," European Journal of Law and Economics, Springer, vol. 41(1), pages 243-254, February.
    4. Bagus, Philipp & Gabriel, Amadeus & Howden, David, 2014. "Causes and Consequences of Inflation," MPRA Paper 79608, University Library of Munich, Germany.
    5. David Howden & Amadeus Gabriel, 2015. "The Interest Rate Brake on Maturity Transformation," Journal of Economic Issues, Taylor & Francis Journals, vol. 49(4), pages 1100-1111, October.
    6. Erin Lawlor-Forsyth & M. Michelle Gallant, 2018. "Financial institutions and money laundering: A threatening relationship?," Journal of Banking Regulation, Palgrave Macmillan, vol. 19(2), pages 131-148, April.
    7. Bellani, Luna & Berriochoa, Kattalina & Kapteina, Mark & Schwerdt, Guido, 2024. "Information Provision and Support for Inheritance Taxation: Evidence from a Representative Survey Experiment in Germany," IZA Discussion Papers 17099, Institute of Labor Economics (IZA).
    8. Philipp Bagus & David Howden & Amadeus Gabriel, 2015. "Oil and Water Do Not Mix, or: Aliud Est Credere, Aliud Deponere," Journal of Business Ethics, Springer, vol. 128(1), pages 197-206, April.
    9. Carmen Adriana Gheorghe & Ioana Nicolae, 2010. "The Influence of Greek Banking Capital in Non-Eurozone Countries," European Research Studies Journal, European Research Studies Journal, vol. 0(2), pages 77-82.
    10. Philipp Bagus & David Howden & Amadeus Gabriel, 2017. "The Hubris of Hybrids," Journal of Business Ethics, Springer, vol. 145(2), pages 373-382, October.
    11. Cunfei Liao & Guohao Tang & Xiaoying Xu, 2024. "Smart money or chasing stars: Evidence from northbound trading in China," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 29(2), pages 1781-1803, April.
    12. Walter E. Block & William Barnett, 2017. "Maturity Mismatching and “Market Failure”," Journal of Business Ethics, Springer, vol. 142(2), pages 313-323, May.
    13. Philipp Bagus, 2011. "The Eurosystem: Costs and Tragedies," Chapters, in: David Howden (ed.), Institutions in Crisis, chapter 7, Edward Elgar Publishing.
    14. Anthony Evans, 2014. "In Defence of ‘Demand’ Deposits: Contractual Solutions to the Barnett and Block, and Bagus and Howden Debate," Journal of Business Ethics, Springer, vol. 124(2), pages 351-364, October.
    15. Xuemeng Guo & Jiaxin Ma & Yuting Feng & Bingyao Chen, 2023. "Green Credit Policy and Short-Term Financing for Long-Term Investment: Evidence from China’s Heavily Polluting Enterprises," Sustainability, MDPI, vol. 15(24), pages 1-18, December.
    16. Philipp Bagus & Amadeus Gabriel & David Howden, 2016. "Reassessing the Ethicality of Some Common Financial Practices," Journal of Business Ethics, Springer, vol. 136(3), pages 471-480, July.
    17. Bagus, Philipp & Howden, David, 2010. "The Term Structure of Savings, the Yield Curve, and Maturity Mismatching," MPRA Paper 79592, University Library of Munich, Germany.
    18. Philipp Bagus & David Howden, 2016. "The economic and legal significance of “full” deposit availability," European Journal of Law and Economics, Springer, vol. 41(1), pages 243-254, February.
    19. Bagus, Philipp & Howden, David, 2016. "Central Bank Balance Sheet Analysis," MPRA Paper 79801, University Library of Munich, Germany.
    20. repec:eme:jfrcpp:v:20:y:2012:i:3:p:322-351 is not listed on IDEAS
    21. Anthony J. Evans & Vlad Tarko, 2014. "Contemporary Work in Austrian Economics," Journal of Private Enterprise, The Association of Private Enterprise Education, vol. 29(Fall 2014), pages 135-157.

    More about this item

    Keywords

    fractional reserve banking; jurisprudence; demand deposit contract; loan contract; civil law; common law; hybrid legal systems.;
    All these keywords.

    JEL classification:

    • K12 - Law and Economics - - Basic Areas of Law - - - Contract Law
    • K15 - Law and Economics - - Basic Areas of Law - - - Civil Law; Common Law
    • P40 - Political Economy and Comparative Economic Systems - - Other Economic Systems - - - General

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:sja:journl:v:11:y:2022:i:4:p:638-649. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catalin-Silviu Sararu (email available below). General contact details of provider: https://edirc.repec.org/data/ssjarea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.