Fractional Reserve Banking
/ˈfrækʃənəl rɪˈzɜrv ˈbæŋkɪŋ/
Definitions
- (n.) A banking system in which banks hold only a fraction of depositors' balances in reserve and lend out the remainder, relying on the assumption that not all depositors will withdraw funds simultaneously.
Under fractional reserve banking, banks can create credit while maintaining liquidity for daily transactions.
Related terms
Commentary
The concept is fundamental in financial law, highlighting the balance between liquidity and credit creation; legal scrutiny often focuses on reserve requirements and depositor protection.
This glossary is for general informational and educational purposes only. Definitions are jurisdiction-agnostic but reflect terminology and concepts primarily drawn from English and American legal traditions. Nothing herein constitutes legal advice or creates a lawyer-client relationship. Users should consult qualified counsel for advice on specific matters or jurisdictions.