> Maybe pedantic, but many people have been using fractional reserve wrt Mt Gox lately. The usual meaning of that term: A bank will loan out deposits, reserving a fraction for withdrawals. However, a key point is that the bank holds collateral against the loan, and that collateral has a fair-market value, so the balance sheet is still positive.
No, the balance sheet is still positive because the debt owed to the bank is an asset of the bank. This is independent of whether the debt is secured by collateral.
(Of course, even a risky loan that is unsecured by collateral is a very different thing than simply having deposits stolen, so, there is a good point that while Mt.Gox surely had less-than-full reserves, it was doing something very different than fractional reserve banking, even assuming that Mt. Gox's own explanations are correct.)
> No, the balance sheet is still positive because the debt owed to the bank is an asset of the bank. This is independent of whether the debt is secured by collateral.
Not always true. For non-recourse loans, the value never exceeds the collateral. When the collateral gets written down, so does the asset.
No, the balance sheet is still positive because the debt owed to the bank is an asset of the bank. This is independent of whether the debt is secured by collateral.
(Of course, even a risky loan that is unsecured by collateral is a very different thing than simply having deposits stolen, so, there is a good point that while Mt.Gox surely had less-than-full reserves, it was doing something very different than fractional reserve banking, even assuming that Mt. Gox's own explanations are correct.)