In Defence of 'Demand' Deposits: Contractual Solutions to the Barnett and Block, and Bagus and Howden Debate

• Published in: Journal of business ethics Vol. 124; no. 2; pp. 351 - 364
• Main Author: Evans, Anthony J.
• Format: Journal Article
• Language: English
• Published: Dordrecht Springer 01.10.2014; Springer Netherlands; Springer Nature B.V
• Subjects: Assets; Bank accounts; Bank assets; Bank fraud; Bank liabilities; Bank liquidity; Bank loans; Bank reserves; Banking; Banking industry; Banks; Business and Management; Business Ethics; Central banks; Checking accounts; Conceptualization; Contracts; Deposit accounts; Education; Ethics; Fractional reserve banking; Fraud; Illegitimacy; Management; Philosophy; Quality of Life Research; Reserve requirements; Studies; Time deposits; Fractional reserve banking; Time deposits; Banking; 100 % Reserve requirement; Demand deposits; Fraud; Maturity mismatching
• DOI: 10.1007/s10551-013-1867-z
• ISSN: 0167-4544

This article contributes to a recent debate between Barnett and Block (J Bus Ethics 88(4): 711–716, 2009), Bagus and Howden (J Bus Ethics 90(3): 399–406, 2009), Barnett and Block (J Bus Ethics 100: 299–238, 2011), Cachanosky (J Bus Ethics 104: 219–221, 2011) and Bagus and Howden (J Bus Ethics 106: 295–300, 2012a) regarding the conceptual distinction between demand deposits and time deposits. It is argued that from an economic perspective there is nothing inherently fraudulent or illegitimate about deposit accounts that are available 'on demand', but that this relies on certain contractual provisions. Particular attention is drawn to option clauses and withdrawal clauses, which "solve" the problems raised by Barnett and Block, and Bagus and Howden. Previous authors have also neglected the asset side of banks balance sheets, and this is shown to further justify the legitimacy of fractional reserve banking.