Fractional reserve banking occurs when:
A)a bank has reserves that exceed its deposits.
B)a bank has reserves that are equal to its deposits.
C)a bank has reserves that are less than its deposits.
D)some depositors lose their deposits through poor bank management.
E)some lenders fail to repay their loans.

Question

Quizplus · Accepted Answer

Fractional reserve banking occurs when a bank has reserves that are less than its deposits. This means that the bank is only required to keep a fraction, or a portion, of the deposits as reserves and can lend out the rest of the money to borrowers. This creates the potential for multiple claims on the same money, which can lead to a bank run if depositors lose confidence in the bank's ability to repay their deposits.

Fractional Reserve Banking Occurs When