Learn more about fractional reserve banking.

By Publisher: Khan Academy | Factsheet

Fractional reserve banking is a key concept in banking. It means banks maintain only a fraction of the total amount of money in all their customers’ deposit accounts as cash that is available for withdrawal by depositors. By doing this, banks free up large supplies of capital that can be loaned out to businesses, thereby helping to expand the economy. The economic system of most countries utilise this concept. This free online banking course explains in detail what fractional reserve banking is and how this banking system works. The course reviews the strengths and weaknesses of the fractional reserve banking system; for example, it helps economies grow but banks are also very vulnerable if there is a run on a bank and all depositors try to withdraw their money at the same time. As an alternative, full reserve banking is also explored and you will also see how money is accounted for in the balance sheets of banks. This free online banking course will be of great interest to professionals in the banking, finance, economics and business fields who would like a greater knowledge and understanding of fractional reserve banking and the strengths and weaknesses of this system of banking.