fractionalreservesystem
The fractional reserve system is a banking practice where banks are required to hold only a fraction of their deposit liabilities in reserve. The remaining portion of the deposits can be loaned out to borrowers. This system allows banks to create money through lending, as the loaned-out funds are often redeposited into other banks, leading to a multiplier effect on the money supply.
The fraction of deposits that banks must hold is determined by reserve requirements set by the central
Proponents of the fractional reserve system argue that it promotes economic growth by making credit available