Fractional Reserve Banking: Difference between revisions
Jump to navigation
Jump to search
mini |
m frb |
||
| Line 1: | Line 1: | ||
Fractional Reserve Banking is the practice whereby a bank holds reserves that are a fraction of its | Fractional Reserve Banking is the practice whereby a bank holds reserves that are a fraction of its on-demand liabilities. It contrasts with a [[Full Reserve Banking]] system in which banks must hold reserves for 100% of on-demand liabilities. | ||
Holding only a fraction of on-demand liabilities means that in the event of a bank-run the bank is mathematically unable to meet its obligations. | |||
Revision as of 17:21, 26 December 2015
Fractional Reserve Banking is the practice whereby a bank holds reserves that are a fraction of its on-demand liabilities. It contrasts with a Full Reserve Banking system in which banks must hold reserves for 100% of on-demand liabilities.
Holding only a fraction of on-demand liabilities means that in the event of a bank-run the bank is mathematically unable to meet its obligations.