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

132 Money, Bank Credit, and Economic Cyclesthe bank may open and manage checking accounts of cashor securities for individuals or legal entities and duly representedcorporations or organizations whose application isconfidentially reviewed by the institution and accepted. Thefollowing may be deposited in ordinary cash accounts: legalbanknotes and coins, checks and other documents related toother checking accounts . . . for each type of checkingaccount the bank will provide the checkbooks needed by theaccount holder; and via the duly authorized checks, it willpay the sums and return the securities to the debit of the correspondingbalances. Against cash checking accounts thefollowing are also admissible: bearer, order, personal andcrossed checks.As we see, these articles of the Bank of Spain’s bylaws, andin general the statutes of all other banks, only regulate theoperation of monetary irregular-deposit accounts and checkingaccounts from the standpoint of depositors, and theyalways maintain the confusion and ambiguity regardingwhether such money is continuously safeguarded and keptavailable by the bank or whether the bank is expresslyauthorized by the depositor to appropriate funds and investthem in personal business deals. We must turn to Article 180of the Commercial Code to see the true original meaning ofSpanish commercial legislation on this point. Indeed, Article180 specifies that “banks will keep cash in their vaults equivalentto at least one fourth the sum of deposits and checkingaccounts in cash and bills in circulation.” This ratio, which hastraditionally been used by the Spanish central bank as aninstrument of monetary policy and has been reduced to a current2 percent, is the culmination of the statutory privilegeenjoyed by the banking industry. Banking is the only institutionexpressly authorized by Spanish positive law to violatethe safekeeping obligations of the monetary irregular-depositcontract, thus receiving permission to appropriate depositors’money for bankers’ own use in investments and personalbusiness activities. Although this reserve requirement alonekeeps bankers from being criminals under the positive law in force inSpain, it does not in the least compensate for the lack of legaljustification for the bank-deposit contract in its current form,nor, as is logical, for the damaging economic effects on society