The Romans and Fractional Reserve Banking

Fractional reserve banking (FRB) was an invention of the free market, and has a long history.

W. V. Harris confirms the existence of FRB in the Roman Republic and Empire:

“Roman bankers did indeed lend – much of the extensive evidence was gathered by Andreau [viz., Andreau 1987]. It can also be demonstrated, in case it needs to be, that classical banks practised fractional reserve banking – for otherwise there would have been no need in the crisis of 85 B.C. to give the bankers of Ephesus ten years to pay back their depositors. We have no evidence as to how large their reserves were normally … It has recently been asserted that ‘any interest gained on [bank] clients’ deposits had to be credited to the account of the client’, with the implication that it would have been pointless, most of the time, for them to loan such funds. But that is extremely misleading: the writer in question failed to notice that what was technically known as a depositum was only one kind of bank-deposit, generally non-interest-bearing, whereas if you wanted interest, the form of your bank-deposit would be a loan” (Harris 2006: 11; Harris 2011: 236).

Roman law appears to have allowed FRB under the mutuum contract, a real contract under which a fungible good like money was lent to a bank and ownership of the money passed to the bank. The bank was required to return an equivalent fungible good or goods in terms of quality and quantity, after a certain time or on demand. The idea that FRB was illegal at Rome or considered immoral is unsubstantiated, despite Huerta de Soto (2006).

BIBLIOGRAPHY
Andreau, J. 1987. La vie financière dans le monde romain: les métiers de manieurs d’argent: (4e siècle av. J.-C.–3e siècle ap. J.-C.), Ecole Française de Rome, Rome.

Harris, W. V. 2006. “A Revisionist View of Roman Money,” Journal of Roman Studies 96: 1–24.

Harris, W. V. 2011. Rome’s Imperial Economy. Twelve Essays, Oxford University Press, Oxford.

Huerta de Soto, J. 2006. Money, Bank Credit and Economic Cycles (trans. M. A. Stroup), Ludwig von Mises Institute, Auburn, Ala.