Tag Archives: fractional reserve

Banking Cartoon

Did you know:

Banks are allowed to lend out funds as long as they have a little of what they lend out. This is called fractional reserve. This is one of the reasons they like to have you deposit money with them and even offer you interest on your money.

By giving customers interest on their money this also means the bank has more money sitting in their accounts, which then, in turn, means that they can offer out some more loans to other customers.

This is why when consumers all start to run to the bank in an emergency to try to take out their cash, the bank might not actually have enough for everyone. This is similar to what happened with Saambou, African Bank and recently VBS Mutual.