User:Childhoodsend/Fractional-reserve

History
See also History of banking

Banks nowadays are allowed to use public deposits for various purposes of their own while being under the obligation to keep a fraction of these deposits as reserves, but this has not always been so.

Deposits and loans consist first and foremost of specific legal obligations. The nature of these obligations may vary from a contract to another, but what has been legally described as a deposit or a loan has been fairly consistent since ancient times to now.

While the loan contract normally implies the transfer of the availability of the good, the deposit contract has different purposes and implications. Black's Law Dictionary, 4th ed. (1951), defines loan as an advance of money with an absolute promise to repay, whereas it defines deposit as "a naked bailment of goods to be kept for the depositor without reward, and to be returned when he shall require it" (see bailment).

In Ancient Greece, clients made deposits for reasons of safety and expected bankers to provide custody and safekeeping, along with the additional benefits of easily-documented cashier services and payments to third parties. Common understanding was that banks kept full reserves but some bankers used the deposited funds of the Athenians for private purposes, a practice that lead to bank bankrupcies caused by bank runs occuring after the public lost confidence in their bank. .