The failure of SVB and other recent bank crises have reignited the debate over fractional reserve banking.
While Austrian economists across the board are critical of central banking and government manipulation of the money supply and interest rates, there are differences of opinion on fractional reserve banking.
Murray Rothbard was firmly against the practice for both economic and ethical reasons; however, "Fractional reserve free bankers" like George Selgin and Larry White have written extensively about how fractional reserve banking per se does not make for an inherently unstable banking system and does not cause business cycles.
To understand how fractional reserve banks operate, we first need to make a distinction between warehouse banking and loan banking.
The issues with fractional reserve banking come from combining these two functions: warehouse banking and loan banking.
The repeated bank runs and associated financial crises caused by fractional reserve banking have led to the creation of central banking, government deposit insurance, a multitude of bank regulations, and a host of agencies to design and enforce these regulations.
If a bank expands credit on top of that via fractional reserve banking, then the supply of credit and interest rates no longer reflect the depositors' underlying real savings and rates of time preference.
https://noqreport.com/2023/04/02/why-fractional-reserve-banking-is-behind-bank-failures/
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