Although the exact details of the basic framework for developing new banking rules, which would allegedly help avoid the banking failures like we’re experiencing now from happening in the future, haven’t been laid out yet, the framework itself leads a lot to be desired, and doesn’t to much to deal with the real banking weakness issue, which is systemic to the core, and no amount of band aids will ever change that.

I’m talking about the fractional reserve banking system used around the world.

To simplify what fractional reserve banking basically is, it’s having only a fraction of the actual bank deposits on hand while the rest is loaned out. The result of this is endless booms and busts and inflation, as money is created out of nothing from the original deposit.

In case you have a hard time believing that’s what happens, in 1963 the Federal Reserve published a book called ‘The Federal Reserve System: Purposes and Functions,’ where it presents a table showing how the system works using a 23 percent requirement for reserves.

If you want to see how that looks, it seems the entry in the Wikipedia on fractional reserve banking actually draws from the table within the book, although it’s not exact, it shows you what happens when a deposit is made the resultant reserve is sent to the Federal Reserve, while the remaining 80 percent is loaned out. Even with the much higher requirement used as an example than the 10 percent or less by today’s standards, almost five times as much capital was released into the economy than the original deposit of $100. Where did the approximate $500 come from? It was created out of thin air. This is why we have an endless series of boom and bust cycles and inflation, as this is multiplied not only in America, but in other nations around the world.

The point in mentioning all that is the meeting at a Bank for International Settlements meeting did absolutely nothing to deal with the systemic problem at all, it simply assumed to continue the fractional reserve system and roles of central banks, offering up some band aide solutions which they believe will keep booms and busts from happening again. They’re wrong!

About the only thing that may help a little with keeping the fractional reserve system would be the taking of profits and keeping more reserves on hand. That probably will help a little, but again, does nothing to address the banking system itself.

Other abysmal ideas coming from the meeting were limiting dividend payments, executive compensation and share buybacks; all of which are pretty much smokescreens for hiding the systemic failures of the weak banking system.

I know most people that don’t understand what’s going on will resist that statement concerning executive compensation, but it really had nothing to do with the collapse of the banking system, it was bad business practice from a free market perspective, which is a problem shareholders should address, not a political committee which has direct interest in passing blame on to someone else.

While there will be more debate as to the details of the framework laid out by the Bank for International Settlements, in the end it will change little or nothing, if the practice of fractional reserve banking continues on doing business as usual.