That's not what it means. A 10% Required Reserve Ratio means the bank can lend $9 for every $10 it has on deposit. Eg, it must keep $1 (10%) in reserves. How

That's not what it means. A 10% Required Reserve Ratio means the bank can lend $9 for every $10 it has on deposit. Eg, it must keep $1 (10%) in reserves. However, when that effect is multiplied throughout the entire banking system [1], the system as a whole amplifies the base amount of money in the system. A 10% Required Reserve Ratio equates to a maximum potential money multiplier of 10, meaning the system as a whole can turn a $10 deposit into up to $100 in circulation. [1]: http://en.wikipedia.org/wiki/Fractional_reserve_banking#Example_of_deposit_multiplication http://en.wikipedia.org/wiki/Fractional_reserve_banking#Exam...