Full Reserve Banking

A Full Reserve Banking or 100% reserve banking system is one in which banks must hold reserves for 100% of on-demand liabilities. This means that should on-demand creditors all simultaneously ask for repayment, the bank will be able to honor all its obligations. This contrasts with a system of Fractional Reserve Banking.

Proof of Reserves

In the Bitcoin world, inasmuch as exchanges have acted like banks by holding user Bitcoin balances, we have seen instances of Fractional Reserve Banking practices and also bank-runs leading to insolvency. Most notably in the case of Mt. Gox. Since then Bitcoin exchanges and other companies acting as Bitcoin custodians have started to offer cryptographic Proof of Reserves, Multisignature vaults and other ways for users to verify that the company's Bitcoin liabilities in the event of insolvency do not exceed reserves.