[ef4]

Sigh. It's a fallacy that making loans implies fractional reserves as normally understood.

Banks can still make loans simply by offering certificates of deposit. This is the above-board way of loaning out people's money -- you make it absolutely clear that taking it out early has a cost, because the money is locked up in (hopefully) profitable ventures.

Would that be less profitable for the banks? Not really -- they would just adjust their prices to compensate, by charging fees on idle money that's instantly redeemable.

And if you let a secondary market for CDs flower, customers can still get good liquidity. Just in a way that's better subject to market discipline.

[minimax]

What you are saying is that you would replace interest bearing savings accounts with fee charging "idle money" accounts, and that if you want to earn any interest on your savings you have to lock it up for a fixed term.

That doesn't really sound like a better alternative.

[ef4]

You may think it sounds better after a few more rounds of banking crises. TANSTAFL.

[boon]

Traditional paradigms of banking might have to change when each person can be his or her own bank.