The Characterization of the Demand Deposit as a Loan under Fractional Reserve Banking: A Critical Legal Analysis
The Characterization of the Demand Deposit as a Loan under Fractional Reserve Banking: A Critical Legal Analysis
Author(s): Mejd Aures BenlalaSubject(s): Civil Law, Law on Economics, Comparative Law
Published by: Societatea de Stiinte Juridice si Administrative
Keywords: fractional reserve banking; jurisprudence; demand deposit contract; loan contract; civil law; common law; hybrid legal systems;
Summary/Abstract: Under fractional reserve banking system, banks activity and operations rely primarily on demand deposits, which are often known as current accounts, especially when it comes to granting loans. Consequently, bank deposits are the primary source of ‘inexpensive’ funding for commercial banks. This article aims to analyze and discuss the widely agreed upon characterization of the demand deposit as a loan contract. Since all today’s legal systems consider the demand deposit a loan contract, this article attempts to challenge this characterization by discussing the arguments and building blocks of the loan theory and examining the essence of both contracts through the lens of law and jurisprudence. The paper concludes that the demand deposit contract cannot be considered a loan contract, with supporting solid arguments from economic and legal perspectives.
Journal: Perspectives of Law and Public Administration
- Issue Year: 11/2022
- Issue No: 4
- Page Range: 638-649
- Page Count: 12
- Language: English