Fractional Reserve System

The fractional reserve system is a banking process where banks keep a small portion of their customers’ deposits as reserves (cash on hand) and lend out the rest. This allows banks to create more money through lending while still meeting withdrawal demands. Essentially, only a fraction of total deposits are held securely, and the rest is used to fund loans and investments, facilitating economic growth. However, it relies on the assumption that not everyone will withdraw their money at once, maintaining system stability and confidence.