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This paper addresses the question what the fundamental nature and mode of being of institutional reality is. Besides the recent debate with Tony Lawson, Barry Smith is also one of the relatively few authors to have explicitly challenged John Searle's social ontology on this metaphysical question, with Smith's realism requirement for institutions conflicting with Searle's requirement of a one‐world naturalism. This paper proposes that an account of institutions as powers or dispositions is not only congenial to Searle's general account, but can also satisfy both the realism and the one world requirements. Searle's worry that such a dispositional account is unable to account for the deontic nature of institutions is countered by an appeal to higher‐order powers as well as Searle's notion of the gap and desire‐independent reasons for action.

The recent economic crisis has re-ignited the debate over the institution of fractional reserve banking (FRB) and its possible adverse economic effects. This paper brings a so far neglected aspect of the problem to the table, namely social ontology. After addressing the scope of social ontology in relation to social metaphysics, social science and FRB, a general ontological framework for money and banking is sketched and applied to the debate between Austrian opponents and proponents of FRB. It shows that the oppositions reflect metaphysical and ontological positions on the reality of powers and dispositions, namely that a realist position in the metaphysics of powers and dispositions tends to a critical position toward FRB, whereas a sceptical position on powers and dispositions leads to a favorable position toward FRB. A final section gives further examples of how these ontological presuppositions shape other arguments in the debate.

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