“A bank is always inherently bankrupt.”

“[A bank’s] liabilities… are due instantly, on demand, while its outstanding loans to debtors are inevitably available only after some time period, short or long as the case may be.  A bank’s assets are always ‘longer’ than its liabilities, which are instantaneous.  Put another way, a bank is always inherently bankrupt, and would actually become so if its depositors all woke up to the fact that the money they believe to be available on demand is actually not there.”

— Murray Rothbard, The Mystery of Banking, page 99, discussing a peculiar feature of fractional reserve banking.  Italics are Rothbard’s.

The book is available for free at http://mises.org/document/614 .  Select PDF File or eBook.

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