💰Fractional reserve banking allows banks to make profits by lending out deposits.
🏦The amount of required reserves depends on the bank's liabilities, such as demand deposits.
🔒Required reserves are set in place as a safety precaution to prevent bank collapses.
🌐Fractional reserve banking increases the national money supply and stimulates economic growth.
🤝Banks collaborate with the Federal Reserve banks to hold reserves and ensure stability.
What is fractional reserve banking?
—Fractional reserve banking is a system where banks hold a portion of deposits as reserves and use the rest for loans and investments.
Why do banks need to keep reserves?
—Banks are required to keep reserves as a safety precaution to prevent collapses and ensure stability in the banking system.
How do banks profit from fractional reserve banking?
—Banks profit by lending out the excess reserves they hold, earning interest on loans and investments.
Does fractional reserve banking increase the money supply?
—Yes, fractional reserve banking increases the money supply by allowing a portion of deposits to circulate in the economy.
How do banks collaborate with the Federal Reserve in fractional reserve banking?
—Banks collaborate with the Federal Reserve by holding reserves in one of the Federal Reserve branches.
00:00Fractional reserve banking is a system where banks hold a portion of deposits and use the remainder for loans.
01:24Bank reserves are required by law to ensure stability and prevent collapses.
02:59Fractional reserve banking increases the money supply and stimulates economic growth.
03:10Banks collaborate with the Federal Reserve banks to hold reserves and ensure stability.
