Munich Personal RePEc Archive

The Hubris of Hybrids

Bagus, Philipp and Howden, David and Gabriel, Amadeus (2017): The Hubris of Hybrids. Published in: Journal of Business Ethics , Vol. 2, No. 145 (2017): pp. 373-382.

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In the pages of this journal, a fruitful debate has evolved on the ethical legitimacy of fractional-reserve banking. In this article we respond to the new arguments raised by Evans (forthcoming) as we clarify our (Bagus, Howden and Gabriel 2015) position on the unethical and illegitimate nature of fractional-reserve banking. Fractional-reserve banking is not a recent financial innovation (unlike, e.g., money market mutual funds) but represents a long-standing legal aberration. The co-mingling of two mutually exclusive financial contracts, deposit and loan, confounds the contracting parties´ purposes, intents, rights and obligations. As a result it creates unsolvable legal difficulties and ethical dilemmas. While these problems are most evident in the case of a bank run, they also arise when trying to answer the simple question of “who owns a deposit?”

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