In my opinion, these are the laws that would need to be made in order to fix our banking system, which includes transitioning us from fractional reserve banking and eliminating the FDIC:
1. The FDIC will only insure deposits in fractional reserve banking accounts for the next ten years, after which time the FDIC will be closed, and no bank accounts will be guaranteed by the federal government after that time.
2. All banks must prominently post:
- Whether or not they are insured against robberies;
- Whether that insurance applies to robberies by employees, non-employees, or both;
- If insured, the name and contact information of the insurance company;
- The amount for which they are insured.
3. No new accounts will be fractional reserve accounts.
4. New accounts may be either one of two types: interest bearing; or full reserve.
5. Neither new interest bearing accounts nor full reserve accounts will be insured by the FDIC.
6. If a bank informs its customers that a certain portion of an interest bearing account can be withdrawn upon demand, the bank must keep that portion of the account in reserve.
7. The bank must hold in reserve the total of the amounts which the bank has guaranteed that will be available for withdrawal to all of its customers with interest bearing accounts and full reserve accounts.
8. The bank is not required to offer the same percentage in reserve for each interest bearing account customer, but may negotiate with the customer the amount to be held in reserve for immediate withdrawal.
9. All interest bearing accounts must be administered within a joint fund, although a bank may have more than one such fund.
10. In any given fund of interest bearing accounts, gains and losses by the fund must be shared proportionately among the investors according to the percentage of the investible fund that they hold; the customers’ reserve amounts are not to be included in this calculation.
11. When signing up for an interest bearing account, customers must be notified in writing of the following facts:
- The portion of the account that is guaranteed to be available for immediate withdrawal will be held in reserve, and will not be invested, and will not earn interest.
- The portion of the interest bearing account that is not held in reserve will not be available for immediate withdrawal.
- The bank will require advance notice for withdrawals of all or part of the funds that are not held in reserve [and the bank will specify in writing the amount of notice necessary].
- Interest bearing accounts are subject to gain, but they are also subject to possible losses.
- Losses in interest bearing accounts are not insured by the FDIC, or by any other agency or organization; if the investments the bank makes with the customer’s money suffer losses, the customer will lose money.
- The customer will be notified in writing on a monthly basis of the status of the interest bearing account, including the amount of money that has been gained, or the amount of money that has been lost.
- If the account loses more than fifteen percent of its value within a given month, the customer will be notified in writing within three business days of such loss. For each additional ten percent loss in the value of the interest bearing account, the customer will be notified in writing within three business days.
- Past performance of interest bearing accounts is no guarantee of future results.
12. No money from a fund of interest bearing accounts can be invested in any investment vehicle or transaction which could result in a loss greater than the amount invested.
13. Interest may not be paid on a full reserve account.
14. Banks may, but are not required to, charge a monthly fee for full reserve accounts; and they may, but are not required to, charge transaction fees instead of or in addition to monthly fees for full reserve accounts.
15. A bank may offer to discount or waive the fees on a full reserve account to customers that invest or have invested a certain amount of money in an interest bearing account; this minimum investment is to be determined by the bank, and is to be the same for all current and new customers; and this amount may not be changed more than once every sixty calendar days.
16. If the account balance of any fractional reserve account falls below $100 for more than 24 hours, the bank is required to do the following:
- Within one business day, reclassify the account as a full reserve account.
- Immediately upon reclassification, remove from the fractional reserves an amount equal to the remaining balance in the account and transfer it to the full reserves for the newly reclassified account.
- Within three business days of the account reclassification, notify the customer in writing of the following:
- In order to comply with federal banking regulations, the account has been reclassified from a fractional reserve account to a full reserve account;
- The account will no longer pay interest;
- Any fees to which the account is subject, and the date on which those fees will begin to take effect;
- The process by which a customer can sign up for an interest bearing account.
17. For accounts converted from fractional reserve to full reserve:
- No fees may be charged for the conversion of a fractional reserve account to a full reserve account.
- A monthly fee may not be charged for the first thirty calendar days after the conversion.
- After the first thirty calendar days, any applicable monthly fees must be prorated for the remaining portion of the calendar month.
18. No bank may invest any of its funds in any investment vehicle or transaction which can result in a greater loss than the amount invested by the bank, regardless of whether the bank has the potential to hedge that greater loss by an offsetting position.
These rules would reform the banking system, and would prevent banks from extending themselves to the point where they pose a threat to the entire economy.