Fractional Reserve Banking

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Revision as of 17:21, 26 December 2015 by Flix (talk | contribs) (frb)
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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.

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