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Fractional reserve banking is actually the opposite. Borrow 5 bucks from a friend (central bank) and lend 10 bucks to your clients. Your example does not incre
by JetSpiegel 8y ago
Fractional reserve banking is actually the opposite. Borrow 5 bucks from a friend (central bank) and lend 10 bucks to your clients.
Your example does not increase yhe money supply.
The ratio is closer to 11%.
- ascorbic 8y agoNo, banks can't lend more than they borrow (and most of the money they borrow is deposits from customers and loans from other banks, not the central bank). They can lend part of the money they take in deposits, but they must hold a fraction of it in reserve – hence fractional-reserve banking. The minimum reserve is set in law.