Abstract
The City of Glasgow Bank collapsed in 1878, and Northern Rock would have collapsed by 2008 without government intervention. In both cases, when too many depositors came to the bank and demanded the return of their deposits, as fractional reserve banks they were unable to meet the full amount of their customer demand. It is the fractional reserve nature of banking, i.e. the small proportion of liquid assets relative to total assets, that is the principal cause of the fragility of the banking system and which consequently makes it subject to crises. Another way of putt ing this is that it is the highly leveraged nature of banks which makes them risky.
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© 2012 Palgrave Macmillan, a division of Macmillan Publishers Limited
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Scott-Quinn, B. (2012). Bank Liquidity Management. In: Commercial and Investment Banking and the International Credit and Capital Markets. Palgrave Macmillan, London. https://doi.org/10.1007/978-0-230-37048-7_8
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DOI: https://doi.org/10.1007/978-0-230-37048-7_8
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Publisher Name: Palgrave Macmillan, London
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