Fractional reserve banking

Fractional Reserve Banking
A banking system in which banks hold only a fraction of their outstanding deposits in cash or on deposit with the central bank.
Related Terms: ...

Fractional reserve banking A system in which depository institutions hold reserves that are less than the amount of total deposits.

Fractional reserve banking involves the creation of money by the commercial bank system, increasing the money supply.

Fractional Reserve Banking
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.

In a fractional reserve banking system, drains of currency from banks reduce their reserves, and unless the Federal Reserve provides adequate additional amounts of currency and reserves, a multiple contraction of deposits results, ...

Due to fractional reserve banking, in aggregate, all lenders and borrowers are insolvent.

By raising or lowering the amount of required reserves, the Federal Reserve can either stimulate or tighten available bank credit, and the ability of banks to lend-known as fractional reserve banking.

Under fractional reserve banking, the commercial banking system as a whole creates money.

In economies such as our own that allow fractional reserve banking, a considerable portion of the supply of loanable funds comes through credit creation by the central bank and the banking system.

Usually, the currency and central bank deposits that together provide the base for the money supply under fractional reserve banking.

fractional reserve banking A banking system in which only a fraction of the total deposits managed by a... fractional share Less than a single share of stock. Fractional shares often result from stock...

See also: Banks, Saving, Federal Reserve Bank, Federal Reserve System, Fed