Fractional Reserve Banking Explained - Fraud Becomes Legal

Fractional Reserve Banking Explained: Fraud Becomes Legal The gap between the very rich and the rest of us is getting bigger. Is the ’trickle-down’ theory correct? Fractional-reserve banking is the practice whereby a bank accepts deposits, makes loans or investments, and holds reserves that are a fraction of its deposit liabilities. Reserves are held at the bank as currency, or as deposits in the bank’s accounts at the central bank. Fractional-reserve banking is the current form of banking practiced in most countries worldwide. Fractional-reserve banking allows banks to act as financial intermediaries between borrowers and savers, and to provide longer-term loans to borrowers while providing immediate liquidity to depositors (providing the function of maturity transformation). However, a bank can experience a bank run if depositors wish to withdraw more funds than the reserves held by the bank. To mitigate the risks of bank runs and systemic crises (when problems are extreme