The whole reserve model

The three questions

A chartered financial institution cannot change the model on which it operates until three questions are answered.

The charter

Whether its charter, its regulator and the law permit the change.

The funding

Whether it can still fund the loans it makes, and at what cost.

The transition

Whether the change can be made without a run on the financial institution, a loss imposed on its depositors, or a rescue by the nation.

The cost of a created deposit

Under the fractional reserve model, a financial institution funds a loan with a deposit it creates by making the loan, and the true cost of that deposit is not the interest the financial institution pays on it. On the assumptions for a representative financial institution in the United States stated beneath Table 3, a financial institution pays four costs, for every dollar it lends, in every year, on the deposit that funds the loan.

Interest

The interest paid to the depositor, 2.40 percent.

Deposit insurance

The assessment paid to the Federal Deposit Insurance Corporation to insure the deposit, 0.10 percent.

Liquidity

The cost of holding cash and government securities against the day the depositor withdraws, which the Basel liquidity rules require, 0.15 percent.

Gathering the deposit

The cost of the branches, the staff and the promotional rates that attract the deposit, 1.50 percent.

The four together are 4.15 percent. The depositor who funded the loan may withdraw the deposit on any day.

The three officers

The three questions were put to the officers who answer for them.

To counsel

Whether a chartered financial institution may hold its clients' value in custody, whole, and decline to lend against it.

To the treasurer

What the financial institution would pay to fund its loans without the deposits it would no longer create, and whether that funding could be withdrawn.

To the chief risk officer

Whether the deposits already created could be retired without a day on which depositors were asked to leave.

Alkaimi Ecosystem™ member financial institutions concluded that the third question set the timetable of the change, and that the first two decided whether there was a timetable at all. No member moved until all three officers had answered.

The answers

Counsel's answer: the charter

No banking charter examined prohibits a financial institution from holding one hundred percent of its clients' value in custody or from declining to lend against it. A charter grants powers and sets minimums; it does not set a quota of lending or a ceiling on what a financial institution may hold.

The chartering rule

In the United States, the rule under which the Comptroller of the Currency charters a national bank requires a special purpose bank to conduct at least one of three functions, receiving deposits, paying checks or lending money, and not all three (12 CFR 5.20).

The reserve requirement

The Federal Reserve reduced the reserve it requires a financial institution to hold against deposits to zero percent effective 26 March 2020, and the Federal Reserve Act sets a ceiling on what the Board may require, not on what a financial institution may hold (Federal Reserve Act, section 19).

The Bank Holding Company Act

The Act treats every financial institution whose deposits are insured by the Federal Deposit Insurance Corporation as a bank, whatever it lends (12 U.S.C. 1841(c)).

The European Union and the United Kingdom

A credit institution is a business that takes deposits from the public and grants credit for its own account (Capital Requirements Regulation, Article 4(1)(1)). An Alkaimi Ecosystem member financial institution does both: it takes ordinary currency deposits at its desk, and it grants credit in the manner the treasurer describes below.

Correspondent relationships

Every correspondent relationship on the Alkaimi™ platform is established under FATF Recommendation 13 and under each member financial institution's own correspondent-banking rules.

Counsel's answer to the first question was yes: the change is permitted under the charter, the regulator and the law under which the member financial institution already operates, and the member keeps all three.

The treasurer's answer: funding

Under the 100% Whole Reserve™ model an Alkaimi Ecosystem member financial institution may fund the loans it writes with a term advance from its own central bank, on collateral that central bank accepts, at that central bank's rate; the Federal Reserve's primary credit rate, 3.75 percent on 2 September 2026, is used here as the reference rate. The collateral is Digitized Tangible Assets™ (DTAs™) whose owner has agreed to rent them to the member financial institution for a term.

The rent

The rented DTAs move into the member financial institution's custodial rental account for the term; title stays with the owner.

The pledge

The member financial institution pledges that account to its central bank as collateral and draws a currency advance below the value pledged.

The advance

The central bank's advance, where the central bank extends it, funds the loans the member financial institution writes and administers.

The order of payment

From the income on those loans the member financial institution pays, in a fixed order, the central bank's charges on the advance, the costs of administering the loans, a provision for losses and the rent it owes the owner of the DTAs, as costs of the program, and retains the balance.

The return

At the end of the term the rented DTAs return to their owner whole.

For every dollar it lends, in every year, the central bank's advance costs the member financial institution the central bank's rate, 3.75 percent at the reference rate, and nothing else. There is no deposit insurance assessment, because the advance is not a deposit. There is no cost of holding cash against withdrawal, because the Basel liquidity rules treat funding secured at a central bank as funding that will not be withdrawn. There is no cost of attracting a deposit, because the advance requires none.

On a card loan book earning 22.15 percent, the margin before losses is 18.40 percent on the advance against 18.00 on a created deposit. On a mortgage book earning 6.71 percent, the margin is 2.96 against 2.56. The difference is 0.40 points in every year of the loan, and about 8 points of the original principal over the life of a thirty-year mortgage, as the balance amortizes.

Table 3. The cost of one dollar of funding under each model, and the margin on two kinds of loan. Sources: Federal Reserve H.15, primary credit rate, 2 September 2026; Freddie Mac Primary Mortgage Market Survey, 3 September 2026; FDIC assessment rate schedule; Basel III Liquidity Coverage Ratio, treatment of funding secured at a central bank. The interest, the cost of holding cash and the cost of attracting a deposit are stated assumptions for a representative financial institution in the United States.

The treasurer's answer to the second question was that a term advance from the member financial institution's own central bank, secured on rented DTAs, is the cheaper funding in every year of the loan, and that an advance for a stated term, unlike a deposit, cannot be withdrawn during that term.

The chief risk officer's answer: the transition

New loans

Every loan an Alkaimi Ecosystem member financial institution writes on rented DTAs creates no deposit.

Old loans

Every existing loan that repays retires the deposit that created it.

The pace

The deposits the member financial institution created under the fractional reserve model therefore retire with its old loans, at the pace at which those loans repay, while the new loans stand on rented DTAs with no deposit beneath them.

No depositor is asked to leave. No liability is written down by order. No rescue by the nation is invoked. The member financial institution's liabilities shrink from promises to substance on the member's own timetable.

The Chicago Plan of 1933 proposed the same separation of custody from lending and was never enacted, and left open where a financial institution would find the money it lends once it stopped creating deposits (Benes and Kumhof, The Chicago Plan Revisited, IMF Working Paper 12/202, 2012). Rented DTAs are that source.

The chief risk officer's answer to the third question was that the transition from created deposits to rented DTAs needs no run on the member financial institution, no loss imposed on its depositors and no rescue by the nation, because each deposit the member created is retired only as the loan that created it repays, and no deposit is retired faster than its loan.

Why the 100% Whole Reserve model serves the Alkaimi Ecosystem member financial institution over the long term

The Alkaimi Ecosystem member financial institution keeps its charter, its regulator, its auditor and its currency business, and adds a value business its regulator can examine on one centrally administered ledger.

The cost of funding

The member financial institution's cost of funding is 0.40 points lower for every dollar it lends, in every year, and a term advance cannot be withdrawn during its term.

The value in custody

The member financial institution owes nothing on its clients' value held in custody, because it never owed it.

The credit exposure

The member financial institution's credit exposure is confined to the loans it wrote, covered first by the provision for losses and past that by the member's own recognized value.

As the Alkaimi Ecosystem's ledger expands, the member financial institution's loans stand on more rented DTAs and fewer created deposits, its old loans retire, and the member arrives at whole reserve operations without a day on which anything was withdrawn.

Each asset recognized onto the ledger adds to the value on which a member financial institution can fund, and adds nothing to any nation's money supply, so the member's growth erodes nothing it holds.

Alkaimi Ecosystem member financial institutions found that the three officers answered yes, to the charter, to the funding and to the transition, and on those three answers the members moved.

Sources

Office of the Comptroller of the Currency, 12 CFR 5.20. Federal Reserve Board, reserve requirements, effective 26 March 2020; Federal Reserve Act, section 19. Bank Holding Company Act, 12 U.S.C. 1841(c). Regulation (EU) No 575/2013, Article 4(1)(1). Financial Action Task Force, Recommendation 13. Basel Committee on Banking Supervision, Basel III: The Liquidity Coverage Ratio and liquidity risk monitoring tools, January 2013. Federal Reserve Statistical Release H.15, 2 September 2026. Freddie Mac Primary Mortgage Market Survey, 3 September 2026. FDIC assessment rate schedule. Benes and Kumhof, The Chicago Plan Revisited, IMF Working Paper 12/202, 2012. The Alkaimi Financial Ecosystem™ in Function, Granular Value on a Neutral Rail, Pegisai Global Holdings, Inc., released 22 August 2026, published on pegisai.com 5 September 2026, section 11.5 and the record's account of the rent agreement, the custodial rental account and the fixed order of payment.

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