Fractional reserve banking is a banking system in which commercial banks hold a portion of their deposits in reserve, while lending out the rest. This practice allows banks to expand the money supply by issuing more loans than they have on deposit. Its a completely fraudulent system, but genius at the same time.
The fractional reserve system is based on the idea that not all depositors will withdraw their money at the same time, and this is the only trick from stopping the whole house of hards from completely crashing. Banks are required to hold a certain percentage of their deposits in reserve, known as the reserve ratio. The reserve ratio is set by the central bank and is typically around 10%.
For example, if a bank has $100,000 in deposits and a reserve ratio of 10%, it must hold $10,000 in reserve and can lend out the remaining $90,000. If the bank loans out all of the $90,000 and the borrowers deposit it into another bank, that bank will have an additional $90,000 in deposits and can lend out $81,000. This process can continue and continue and continue and continue and continue leading to an expansion of the money supply. It doesnt take long before a $100,000 deposit can account for over $1,000,000 in "loaned out" monies.
Economists would have you believe fractional reserve banking has its benefits, such as allowing for economic growth and development by providing more credit and liquidity to businesses and individuals. However, it also has its drawbacks, such as increasing the risk of bank runs and financial instability, but as long as the good times flow, 99% of the population simply bury their heads in the sand and ask no question!!
During a bank run, depositors lose confidence in a bank's ability to meet its obligations and withdraw their deposits, leading to a shortage of cash. This can cause a chain reaction, as other depositors also withdraw their money, and the bank will NOT have enough reserves to cover all of the withdrawals. This can lead to bank failures and a loss of confidence in the banking system. While i understand that banks are a useful tool, i realised years ago that without undue care and attention, your bank can quickly and most definitely will take advantage of you and your hard earned fiat. To rectify this conundrum, i keep the kinimum amount i need in my bank account. I remove any excess fiat sitting idle and invest it in either gold or silver. This gives me control of my money and orevents greedy banker gambling my future and kids future for their benefit and thiers alone. SO BE SMART AND BUY PRECIOUS METALS.
To mitigate the risks of bank runs, central banks act as lenders of last resort, providing banks with the necessary funds to meet their obligations during times of crisis, which inevitably falls on the hard working taxpayer to cover. Here in the UK, deposit insurance is used to protect depositors from losses in the event of a bank failure to the sum of £85,000 per account, which again falls on the UK taxpayer to cover..... What ever way we cut this shit sandwich, its still mine and your money that pays for the failings of corruption and greedy from bankers.
So to sum it up, fractional reserve banking is a practice that allows commercial banks to fraudulently create more money than they have on deposit, expanding the money supply and temporarily promoting the illusion of economic growth. However, it also increases the risk of bank runs and financial instability. Yet all throughout modern history, greedy bankers and central banks never fall on the sword they so happily wield. Its left to you, "Joe Public", to foot the bill for this giant Ponzi scheme scam .
40+yr old, trying to shift a few pounds and sharing his efforsts on the blockchain. Come find me on STRAVA or actifit, and we can keep each other motivated .
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