Fractional reserve banking takes its name from the fact that banks
A)hold only a fraction of their reserves at the bank itself.
B)keep only a fraction of their total deposits on reserve.
C)lend only a fraction of their total reserves to customers.
D)reserve only a fraction of their activity for lending.

Question

Quizplus · Accepted Answer

Fractional reserve banking means that banks are only required to hold a fraction (usually around 10%) of their total deposits on reserve as cash or deposits with the central bank, and are permitted to lend out the rest of the money to borrowers. This system allows banks to earn interest on the funds they lend out, but also exposes them to the risk of bank runs if too many depositors seek to withdraw their funds at once.

Fractional Reserve Banking Takes Its Name from the Fact That