What Is Fractional Reserve Banking?
Memory hook: some cash in the drawer, the rest at work.
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1.What does a bank do with most of your deposit under fractional reserve banking?
Memory hook: some cash in the drawer, the rest at work.
2.Leo deposits 1,000 and the bank keeps 10 percent as cash. How much does it lend out?
The bank keeps 100 and lends 900; Leo still sees 1,000 in his account.
3.In the textbook chain, how much do the deposits add up to for a first deposit of 1,000 and a 10 percent reserve?
It is the textbook picture, which the Bank of England questions.
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Sources (9)
- Board of Governors of the Federal Reserve System: Reserve Requirements
- Bank of England Quarterly Bulletin 2014 Q1: Money creation in the modern economy (McLeay, Radia, Thomas)
- FDIC: Understanding Deposit Insurance
- Federal Reserve History: Banking Panics of the Gilded Age
- FDIC Working Paper 2006-01: Sources of Historical Banking Panics
- Eigene Rechnung: Leos Eckbank (Zahlenkette
- Board of Governors of the Federal Reserve System: Lending to depository institutions (Discount Window)
- Board of Governors of the Federal Reserve System: Understanding Federal Reserve Supervision
- FDIC: Options for Deposit Insurance Reform, Section 1: Executive Summary (May 2023)
Education only. Not financial advice.