So from what I understand, in Fractional Reserve Banking, whenever money is deposited into a bank, they keep a percentage of that money to give out as loans.
So since they are giving out the reserve, how exactly is the bank making money here?
And since people are able to withdraw their entire deposit…. How can that be the case when some of it is taken for the reserve?
In: Economics
in the simplest terms, if your money is in, part of it is being used as a loan the bank can use. If that loan is currently being used for somebody and you decide to take all your money out, well they have to give you back that money, but it’s obviously in use by somebody else, they will use the loan from other peoples balances to pay for it.
the issues happen when *everybody* tries to take out their balance, if they have your money on loan with somebody, but everyone else is also taking their money out, there is no one available to loan money from their balance to cover it.
Latest Answers