A reserve (or government cash deposit) is not technically required for a bank to issue a loan. Its _risky_, since it could lead to a situation where someone tr

A reserve (or government cash deposit) is not technically required for a bank to issue a loan. Its _risky_, since it could lead to a situation where someone tries to cash out and you have nothing to give them, which would destroy your business and reputation as a banker. But if you could make perfect loan decisions and no one comes to redeem their deposit, you wouldn’t need to have any reserves at all. Most regulators require a minimum amount of reserves to prevent instability or bank runs (and to control money supply) That’s the difference, you’re not lending out the original amount of cash, you’re using it as a reserve in case someone asks for their money.