DeSoto

"Bank A and Bank B, both of which have two options: either to refrain from expanding credit or to adopt a policy of credit expansion. If both banks simultaneously initiate credit expansion (assuming there are no other banks in the industry), the ability to issue new monetary units and fiduciary media will yield the same large profits to both. If either expands credit alone, its viability and solvency will be endangered by interbank clearing mechanisms, which will rapidly shift its reserves to the other bank if the first fails to suspend its credit expansion policy in time. Finally it is also possible that neither of the banks may expand and both may maintain a prudent policy of loan concession. In this case the survival of both is guaranteed, though their profits will be quite modest. It is clear that given the choices above, the two banks will face a strong temptation to arrive at an agreement and, to avoid the adverse consequences of acting independently, initiate a joint policy of credit expansion which will protect both from insolvency and guarantee handsome profits.

The above analysis extends to a large group of banks
which operate in a free-banking system and maintain a fractional
reserve. The analysis shows that under such circumstances,
even if interbank clearing mechanisms limit isolated
expansionary schemes, these spontaneous mechanisms actually
encourage implicit or explicit agreements between the
majority of banks to jointly initiate the process of expansion.
Thus in a fractional-reserve free-banking system, banks tend
to merge, bankers tend to arrive at implicit and explicit agreements
among themselves, and ultimately, a central bank tends
to emerge. Central banks generally appear as a result of
requests from private bankers themselves, who wish to institutionalize
joint credit expansion via a government agencydesigned to orchestrate and organize it. In this way, the “uncooperative”
behavior of a significant number of relatively more
prudent bankers is prevented from endangering the solvency
of the rest (those who are more “cheerful” in granting loans)."

[páginas 668 e 669]