Full Reserve Banking: Difference between revisions
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A [[Full Reserve Banking]] or 100% reserve banking system is one in which banks must hold reserves for 100% of on-demand liabilities. This means that should on-demand creditors all simultaneously ask for repayment, the bank will be able to honor all its obligations. This contrasts with a system of [[Fractional Reserve Banking]]. | A [[Full Reserve Banking]] or 100% reserve banking system is one in which banks must hold reserves for 100% of on-demand liabilities. This means that should on-demand creditors all simultaneously ask for repayment, the bank will be able to honor all its obligations. This contrasts with a system of [[Fractional Reserve Banking]]. | ||
Term-deposits and other time liabilities are not limited by a full reserve banking policy. However the bank should plan to have enough reserves when their term expires and they become enforceable. | |||
Revision as of 17:51, 26 December 2015
A Full Reserve Banking or 100% reserve banking system is one in which banks must hold reserves for 100% of on-demand liabilities. This means that should on-demand creditors all simultaneously ask for repayment, the bank will be able to honor all its obligations. This contrasts with a system of Fractional Reserve Banking.
Term-deposits and other time liabilities are not limited by a full reserve banking policy. However the bank should plan to have enough reserves when their term expires and they become enforceable.
Proof of Reserves
In the Bitcoin world, inasmuch as exchanges have acted like banks by holding user Bitcoin balances, we have seen instances of Fractional Reserve Banking practices and also bank-runs leading to insolvency. Most notably in the case of Mt. Gox. Since then Bitcoin exchanges and other companies acting as Bitcoin custodians have started to offer cryptographic Proof of Reserves, Multisignature vaults, third party audits and other ways for users to verify that the company's Bitcoin liabilities in the event of insolvency do not exceed reserves.
Vaultoro, Kraken, BitStamp or Uphold are some of the companies that pioneered Proof of Reserves levels of transparency.