Financial Glossary: Fractional reserve banking


en			ru			jp

Home

Knowledge Base

Financial Glossary

Fractional reserve banking

Back

Fractional reserve banking

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

Back

Privatebanking.com

Get the attention you always wanted and promote your corporate image and standing by benefiting from our state of the art interactive web presence.

Ascent Limited

Experience The Difference. Ascent Limited provides first class wealth management and family office services. Our private banking team, assembled from a group of highly experienced banking professionals, will provide financial advice tailored to your individual requirements and keep your portfolio in tune with the latest market developments and opportunities.

©	Copyright by PRIVATE BANKING.COM 2002- - All rights reserved.