8. Preventing Runs on Banks

To slow or prevent draw downs of the reserve requirements of the modern banking system, penalty fees could be assessed on withdrawals that occur during times of high currency demand. The lower the banking system’s percentage of available cash on hand in relation to total deposits, the higher the penalty fee would be. For example, if the reserves in the banking system fall to half the generally required minimum of 10% of assets (5%), penalty fees equal to 1% of withdrawals could perhaps be charged to customers. If reserves fall to 2%, perhaps the withdrawal fees could rise to 5%, and if they fall to 1%, penalties of 10% could be assessed. The deduction of these fees from customer withdrawals would cause customers to reduce or postpone withdrawals, thus increasing the chances that the economic crisis will pass before large amounts of money are withdrawn.

Conversely, deposit bonuses could be offered by banks to encourage people to deposit funds during such critical times.

Similar principles could be applied to the trading and pricing of securities. Once exceeding a certain rate of price decline, the faster the price of a security falls, the higher a penalty fee charged to individuals wishing to sell it at that time. Conversely, taxes and other charges could be reduced or eliminated to encourage people to purchase securities during such critical times.

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