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. Most countries operate under this type of system. Investopedia Says:
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. Related Terms:
Bank Run
Black Thursday
Depression
Emergency Banking Act Of 1933
Money Supply
Multiplier Effect
Reserve Ratio
Reserve Requirements
Undisclosed Reserves |