The establishment of a lender of last resort and deposit insurance erodes bank capital because both are substitutes for capital in the eyes of depositors, which is why bank capital must now be regulated whereas before the Fed banks commonly held capital equal to 30% of liabilities.

causalpending

Speaker

George Selgin

Evidence Quote

the establishment of central banking tends to eat away at bank capital because it's a substitute in the eyes of depositors if you have a lender of last resort you don't need a capital

Source

George Selgin on Free Banking 11/17/2008EconTalk
Created: 6/15/2026, 9:20:23 AM

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