Each bank can lend an amount equal to its total reserves and no more.
The bank can lend only a fraction of its total deposits because the Fed requires it to hold some as reserves.

Question

Quizplus · Accepted Answer

The statement is incorrect. Banks are able to lend more than their total reserves through the process of fractional reserve banking, where they only need to hold a fraction of their total deposits as reserves. This allows them to create new money by making loans that exceed their actual reserves.

Each Bank Can Lend an Amount Equal to Its Total