What is fractional banking?

Fractional Banking is a banking system that requires banks to hold only a portion of the money deposited with them as reserves. The banks use customer deposits to make new loans and award interest on the deposits made by their customers. The reserves are held as balances in the bank’s account at the central bank or as currency in the bank.

When did fractional reserve banking start?

Considering that in a full-reserve scenario, a bank cannot lend customers’ money out and make a profit on it, the bank would need to charge customers interest just to hold the money in safekeeping. Coro Global attributes the beginning of fractional reserve banking to Sweden in the 17 th century and to the US in 1791.

What are government controls & bank regulations relating to fractional-reserve banking?

Government controls and bank regulations related to fractional-reserve banking have generally been used to impose restrictive requirements on note issue and deposit taking on the one hand, and to provide relief from bankruptcy and creditor claims, and/or protect creditors with government funds, when banks defaulted on the other hand.

What is factional reserve banking?

With factional reserve banking, banks can lend out deposits with interest to amplify the economy. The Federal Reserve was founded in 1913 to better regulate the banking market so that banks didn’t run out of money and people could get access to more lending opportunities.