In Fractional Reserve Banking, how is the money supply increased considering reserves are given away? And how are people who deposit the money able to withdraw their entire deposit when some of it is kept to BE a reserve?

Question

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

Answer 1

Thats what you call a bank run, when everyone pulls their money at once. The bank goes under, very few if any can survive a run, we saw it happen with that bank in Silicone valley a year or two back. It was pure fear that the bank was out of money and everyone freaked out pulling billions out over night, feds had to step in and basically liquidate their assets.

Banks make money by lending out your money and charging interest, which is agreed upon percentage of said loan. 100,000 loan at 7% means the borrower will pay back 107,000 over the next say 5 years