Fractional Reserve Banking
Categories: Banking
Fractional Reserve Banking represents the way modern banking systems are organized. Banks take deposits (that’s you putting your money into a savings account) and loan that money out at interest (that’s you borrowing money to open a pastry shop specializing in gluten-free scones).
In fractional reserve banking, the bank holds a part of its deposits back. It doesn’t loan out everything. It holds a fraction in reserve (that’s the money in the vault).