Oil and water do not mix, or: aliud est credere, aliud deponere

Bagus, Philipp and Howden, David and Gabriel, Amadeus (2015): Oil and water do not mix, or: aliud est credere, aliud deponere. Published in: Journal of Business Ethics , Vol. 1, No. 128 (2015): pp. 197-206.

Abstract

The financial crisis has led to new interest in the ethics of financial markets. In this article we further the debate on the nature of banking contracts by showing that the fundamental subjective purposes of loan and deposit contracts are irreconcilable. Any resultant mixture of the two contracts is a legal aberration. We consider a mutual fund as an important and legitimate alternative to the common demand deposit to provide high liquidity and some yield without offering full availability of a nominal sum. Besides being a close substitute for how many deposit accounts function today, the mutual fund has the additional benefit of satisfying all legal and ethical requirements. Loan and investment contracts (such as money market mutual funds) allow for the “bank” to make use of their clients’ funds while the intents of money owners are clearly classified without running into legal or ethical problems.

• Item Type: MPRA Paper
• Language: English
• Keywords: Fractional-reserve banking, Maturity mismatching, Fraud, Legal purpose, Deposit, Loans
• Subjects: G - Financial Economics > G0 - General; G - Financial Economics > G0 - General > G00 - General; K - Law and Economics > K1 - Basic Areas of Law; K - Law and Economics > K1 - Basic Areas of Law > K12 - Contract Law; K - Law and Economics > K2 - Regulation and Business Law > K22 - Business and Securities Law

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