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Fractional reserve banking
       
 
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Fractional reserve banking

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Fractional reserve banking
A banking system in which only a fraction of the total deposits managed by a bank must be kept in reserve.
    
The amount of the deposits equals the amount of the reserves times the Deposit multiplier. In the U.S., this system is maintained by the Federal Reserve Board.
    
A banking system in which only a fraction of bank deposits are backed by actual Cash-on-hand and are available for withdrawal. This is done to expand the economy by freeing up capital that can be loaned out to other parties. Most countries operate under this type of system.
    
Many U.S. banks were forced to shut down during the Great Depression because so many people attempted to withdraw assets at the same time. Today there are many safeguards in place to prevent such an instance from occurring again, but the fractional-reserve banking system remains in place.
Posted by  Privatebanking.com
 
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