Introduction to Fractional-Reserve Banking | Online | Alison

Introduction to Fractional Reserve Banking - Revised

Gain a better understanding of fractional reserve banking and the strengths and weaknesses of this banking system.

Finances and Banking
Free Course
This free online fractional reserve course will discuss how fractional banking allows banks free up large supplies of capital that can be loaned out to businesses. Fractional reserve banking is a key concept in banking, and helps to expand the economy. In this system, banks maintain only a fraction of the total amount of money in all their customers' deposit accounts as cash available for withdrawal. Take this course today to learn more.
  • Duration

    1.5-3 Hours
  • Assessment

  • Certification

  • Responsive

  • Publisher

    Khan Academy





View course modules


Fractional banking allows an economy to expand by freeing up capital that can be loaned out to other parties. This course begins by explaining in detail what fractional reserve banking is and teach you how this banking system works. You will first learn the strengths and weaknesses of reserve lending and look at how it helps economies grow. You will then learn about "runs" on banks, which is when all depositors try to withdraw their money at the same time.

Full-reserve banking, also known as 100% reserve banking, is a proposed alternative to fractional-reserve banking. Here, banks would be required to keep the full amount of each depositor's funds in cash and be ready for immediate withdrawal on demand. This course will discuss full reserve banking where you will see how money is accounted for in the balance sheets of banks. You will also learn how banks present information about their key assets and liabilities.

This economics course will give you an in-depth understanding of fractional reserve banking and full reserve banking. You will learn how fractional reserve banking affects the amount of money in circulation, along with the key theoretical perspectives on money circulation. By the end of the course, you will have a clear understanding of why central banks use newly created reserves to buy government debt and how they increase the supply of money to stimulate the economy during a recession. So why wait? Start gaining this fundamental banking knowledge, today.

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Learning Outcomes

Having completed this course, you will be able to:

  • Describe what fractions reserve banking is and how it works
  • Define what the main pros and cons of the system are
  • Outline what the alternative, namely full reserve banking is
  • Explain what the different views of money are and how they are calculated
  • Discuss how banks present information about their key assets and liabilities


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