Silicon Valley Bank and the Failure of Fractional Reserve Banking

 With the apparent failure of Silicon Valley Bank potentially causing a crisis in the American and even the global financial system, we will be treated to all manner of explanations, very few of which will accurately state the cause of these troubles: fractional reserve banking.

In modern banking there is little separation between warehouse and investment banking.

With the failure of the investment, the bank is now short 5 percent of the funds both expected by and legally owed to the warehouse account depositor.

The mechanism I have outlined above explains what happened in the case of Silicon Valley Bank.

The mainstream appears to understand the practical impact of fractional reserve banking, without realizing the full implications.

A single bank failure doesn't necessarily spell economic collapse.

The solution to both bank runs and business cycles is to institute a gold standard along with a 100 percent reserve requirement for warehouse accounts.

https://mises.org/wire/silicon-valley-bank-and-failure-fractional-reserve-banking