Narrow Banking

About Narrow Banking

Narrow banking is a proposal where banks would be required to back all deposits with central bank reserves or government bonds, eliminating the risk of bank runs. The concept was first proposed during the Great Depression by economists including Henry Simons and Irving Fisher. The Chicago Plan of 1933 advocated 100 percent reserve banking. Narrow banking would eliminate fractional reserve banking, where banks lend out deposits. Proponents argue it would prevent banking crises. Critics argue it would eliminate credit creation and reduce economic growth. The concept gained attention after the 2008 crisis. Narrow banking proposals have been studied by the IMF and Federal Reserve but not implemented. Stablecoins backed by government bonds are a private form of narrow banking.