Fractional Reserve Banking

What is the Fractional Reserve Banking?

During the past and this week, we have seen in our Social Studies class a video that explains how the economic sector works in the United States. The Fractional Reserve Banking is one organization of the United States economy which assures the effectivity of the money flowing along the country. The Fractional Reserve Banking  is a banking system in which a fraction of the bank´s deposits is retained and sustained by the same amount of money. The other amount of the deposit has no support in cash.

This is done to expand the country´s economy by setting free some capital that can be loaned to more people and gain more money through the interests rate. Most of the countries in the world operate under the system of the Fractional Reserve Banking. During the Great Depressions many banks collapsed because all the people simultaneously tried to retire their money from their accounts. This is what the Fractional Reserve Banking tries to prevent.


MLA Citation:
N.A. ¨Fractional Reserve Banking¨ Investopedia. Investopedia US. Not specified. Web. 4 April                       <2014. http://www.investopedia.com/terms/f/fractionalreservebanking.asp>