credibility and banking

[Perry E. Metzger]

>From: tribble at xanadu.com (E. Dean Tribble)

>My understanding of the history of banking is that there are ZERO
>documented cases of runs on banks before the gov't started mucking
>with the banking industry.  They started that mucking based on some
>economists projection that such a run could happen, so the gov't had
>to protect the pipul from it.

Not strictly speaking the case -- there were instances of bank runs
under free banking systems, but restriction clauses usually eliminated
these problems immediately. Restriction clauses permitted banks to
briefly suspend payments in gold, with a heavy interest penalty paid
by the bank. Such clauses allowed banks to stop runs, but they could
not be lightly used. In any case, runs were quite infrequent under
free banking systems.

In any case, I believe that digital banknote systems, when they
arrive, will almost certainly involve explicit issuance banks rather
than any sort of anonymous banks. Likely such banks will first appear
offshore and will, at least at first, be nothing more than banks that
accept cryptographically signed electronic mail in the stead of checks
and bank drafts.

Perry