Money, Bank Credit, and Economic Cycles - The Ludwig von Mises ...

80 Money, Bank Credit, and Economic CyclesMorga, along with the less prominent Cristóbal Francisquín,Diego Martínez, Juan Íñiguez, and Octavio de Negrón. All ofthem inexorably went bankrupt, for the most part due to alack of liquidity with which to satisfy depositors’ withdrawalsof demand deposits. This demonstrates they were operatingwith a fractional reserve, aided by a license or privilegeobtained from the city of Seville and from Charles V himself. 71We do not have information on their exact reserve ratio, butwe do know that on many occasions they made personalinvestments in the fleet used for trading with the Americas, inthe collection of taxes, etc. Such risky ventures were alwaystremendously tempting, because when they went reasonablywell they yielded enormous profits. Moreover, as mentionedabove, the repeated confiscation of bank deposits of preciousmetals only further encouraged bankers to carry on their illegitimateactivities. Consequently, the Espinosas’ bank failed in1579 and the senior partners were imprisoned. The bank ofDomingo de Lizarrazas failed on March 11, 1553, when he wasunable to make a payment of more than six and a half millionmaravedis, while the bank of Pedro de Morga, who began hisoperations in 1553, failed in 1575, during the second bankruptcyof Philip II. The less prominent banks suffered thesame fate. Thomas Gresham made an interesting comment onthis issue. He had traveled to Seville with instructions to withdrawthree hundred twenty thousand ducats in cash, forwhich he had obtained the necessary license from the emperorand Queen Mary. Gresham marveled that in the very city thatreceived the treasures of the Indies money could be soextremely scarce. The same was true for the markets, and Greshamfeared that all the city’s banks would suspend payments71 Spanish banks of the seventeenth century had no better luck:At the beginning of the seventeenth century there werebanks in the court, Seville, Toledo and Granada. Shortly after1622, Alejandro Lindo complained that not one still existed,the last one (owned by Jacome Matedo) having failed inSeville. (M. Colmeiro, Historia de la economía política española[1863; Madrid: Fundación Banco Exterior, 1988], vol. 2, p.342)