Another way of looking at the essential and inherent unsoundness of fractional reserve banking is to note a crucial rule of sound financial management—one that is observed everywhere except in the banking business. Namely, that the time structure of the firm’s assets should be no longer than the time structure of its liabilities. Murray Rothbard, The Mystery of Banking, Chapter VII: Deposit Banking I begin with this cite of Rothbard.  He points out one of the key destabilizing features of modern banking – the mismatch of the time structure of the banks’ assets and its liabilities.  This mismatch has been allowed to exist and … Continue reading Is Shadow Banking a Problem?