Archive for August 28th, 2015

A brief peek into Chettiar Banking system

August 28, 2015

One realises how much of economics and finances one has to undo as you keep going through material. It is amazing really.

Came across this interesting piece by Prof Malvika Nair of Troy University. She is a supporter of free banking and has written a few pieces on  free banking in India.

In free banking literature, there are these debates on whether banks should have a 100% reserve system or a fractional reserve banking system? Fractional reserve is when banks just keep a fraction of deposits as reserves and lend the rest. 100% reserve system is when banks maintain the entire amount and do not lend anything. The former ones are often credited as responsible for the crisis as depositors cannot get their full deposits at anytime. The latter one are seen as safer and do not have any such problems with deposits.

This piece is on how Chettiars operated their banks following a fractional reserve system:

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