Gold Research Videos

What is true is that whenever there is a fractional reserve private banking system, there is a very strong incentive among private banks to merge with each other, because in this way they decrease the probability of losing reserves. If you merge with another bank, and at the end you get 25 per cent of market share, for instance, as a banker in Spain now has, the probability that everyone using the bank system being your client is 25 per cent. So, your position is very comfortable, much more comfortable than if you were a tiny bank, trying to increase your fiduciary media, your demand deposits, always with a danger of, through the chamber of liquidation, being requested to give you back in reserves the demand deposits you have created.

So, there is a tendency to have a merger. In fact, if, in theory, all private bankers were merging in just one private banker worldwide, no problem whatsoever of solvency would appear. [laughs] So, for the theoretical point of view, this is the tendency we should see whenever the fractional reserve banking system is kept.

On the contrary, if we could reform the current financial system, reintroducing the 100 per cent reserve requirement as was required by Peel's Bank Act, not only for paper bank notes but also for demand deposits, then the number of private bankers would be irrelevant. We could see thousands of banks, tiny, medium, or large ones, competing with each other freely in the market. But, no economics of scale on the allocation of reserves would be needed, as they are now needed.