Tuesday, 13 November 2012

Deposit insurance is a mistake because of loans

Deposit insurance should be conditional on banks not being allowed to make loans. If banks are insured by the state and can extend credit then they will be able to increase the money supply and cause inflation. We will not have sound banking if banks with deposit insurance can make loans. If banks can make loans they should not be given deposit insurance... the problem with deposit insurance is that banks can make loans.

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