> It's pretty similar. The bank has some cash on hand, and the rest sits in less liquid assets (like loans). That model is far too simplistic. And for most int

> It's pretty similar. The bank has some cash on hand, and the rest sits in less liquid assets (like loans). That model is far too simplistic. And for most intents and purposes, especially when talking about bank runs, it fails rather badly. I'll give the following explanation. Its going to sound like a huge scam, a ponzi scheme, a hugely irrational method, but in actual fact it makes a lot of sense for reasons that I'm not intelligent enough to put into words. But, its a rather elegant way of controlling the money supply. So.... Imagine that I start a bank called Humber Necks Bank. We start with 0 customers. Then Adam comes in and deposits $400. The Ben comes in and asks for a loan of $200. We give him half of the money we got from Adam. Ben deposits this $200 in the bank. The Charlie comes in and asks for a loan of $100. We give him half of the money we got from Ben. Charlie deposits this $100 in the bank. The David comes in and asks for a loan of $50. We give him half of the money we got from Charlie. David deposits this $50 in the bank. Then all of a sudden Adam, Ben, Charlie and David want to buy a bunch of in-game items on Pokemon go. Adam will come in and ask for $400, Ben will come in and ask for $200, Charlie will come in and ask for $100, and David will come in and ask for $50. That's a huge problem, because all I actually have is $400 (that Adam originally deposited).