Silicon Valley Bank and the Failure of Fractional Reserve Banking

Source: Ludwig von Mises Institute
by JR MacLeod

“The mainstream appears to understand the practical impact of fractional reserve banking, without realizing the full implications. As equity research analyst Alexander Yokum said in a comment to the BBC, ‘The issue was that people wanted money and they didn’t have it — they had it invested and those investments were down.’ A single bank failure doesn’t necessarily spell economic collapse. SVB is liquidating assets to cover deposits, which is the right thing to do. America also has the Federal Deposit Insurance Corporation (FDIC), which is a government agency that insures all deposits up to $250,000. However, the FDIC is only a temporary solution which makes things worse in the long run for the economy at large. The deposit insurance program institutes moral hazard and encourages risky behavior by banks.” (03/15/23)