[ww520]

It's a nice thought but BitCoin doesn't change the debt-leveraged practice of the banks. Sorry to rain on the parade.

The fractional reserve requirement allows the banks to lend multiples of their incoming deposits no matter what the currency. BitCoin is just another currency, like the dollars. M1/M2 in circulation is much smaller than the actual money used in the economy. BitCoin will be the same way.

The banks can very well open BitCoin accounts, allowing people to deposit actual BTC. The bank then lends the BitCoin out in multiple of deposit, like 5BTC lent out for 1BTC deposited. The BitCoin lent out are not delivered in actual BTC, just some numbers in the borrowers' accounts. Only when the borrowers withdraw that they get back BTC. Like the dollar accounts, most people don't withdraw large amount of dollars; they just write checks or wire transfer them. Same way for the BitCoin accounts. Thus the debt-leverage economy with BitCoin will arrive.

If everyone withdraws from the BitCoin accounts, there would be a run on the bank and the bank won't have enough BTC reserve to meet the demand and collapses. Banks can put daily withdraw limit like ATM and tell people to write BTC check. It's just as good as BTC.

The digital nature of BitCoin will probably allow people to withdraw more easily and thus lower the possible leverage multiplier.

[politician]

It will be possible to audit BitCoin banks in a way that's not possible for today's banks. Specifically, transactions are public, although anonymous. Even so, it ought to be possible to perform a kind of traffic analysis against the public block chain to determine whether a group of addresses are participating in fraud (in the form of fractional reserve banking) given that initially a customer has to send their BitCoins to some address owned by the bank.

[nazgulnarsil]

also a public ledger of all transactions.