Oh yes you can.

Adam Collyer left a comment on Markets Work. The Other Thing Doesn't:

All agreed, except for the passing mention of "ever increasing quantities of credit, based on fractional reserves to inflate economies and buy votes". You can't have banks really without fractional reserve banking - you certainly can't have loan finance.

Consider if you insist on 100 percent reserves. So you put £100 in the bank. They can't lend it out because they need to hold 100 percent of it in reserve. And that's it. No loans - banks become just a safe place to store money - like a fortified version of your mattress.

1. Although nobody in his right mind suggests banning FRB entirely (i.e. insisting on a 100% ratio), it would not be the end of the world. When you go to the bank with your £100, you can either:

a) Invest it as share capital (or buy existing shares to the value of £100), or
b) Invest it as a debenture or bond (or buy existing bonds to the value of £100), or
c) Invest in an interest bearing current or deposit account, or
d) Pay it over as a pure deposit or current account for safe-keeping for a small monthly or annual charge.

With a) to c), it is implicit that your money is lent on at interest and you expect a share of the profits (the more risk you accept, the higher your return). With d) there is neither risk nor return.

2. FRB is like most things - it's good up to a point and 'too much' is a bad thing. So whether we measure the old-fashioned reserve ratio (ratio of liquid assets to total deposits) or the more modern Basle ratio (ratio of share capital-plus-retained profits to total assets) is neither here nor there. A ratio of anything above fifteen per cent appears to be, in practice, more or less rock solid. Anything below ten per cent usually leads to disaster.

3. Even without FRB, businesses can still borrow from the public directly without the bank as an intermediary (although admittedly it is much easier for very large companies to borrow in this way than it is for small, medium or quite-large ones).

4. To really get a credit bubble going, you also need an asset price bubble (usually land and buildings), because then the debits and credits more-or-less create themselves (nearly every penny that the banks lend to Mr Purchaser as a mortgage gets deposited back with the banks by Mr Vendor). Sorting out land price bubbles once and for all is dead easy of course - by shifting taxes from income and output to land values - provided we can first wean the general public off the idea that rising house prices = increased wealth.