What is one significant consequence of fractional reserve banking?
A) Banks are vulnerable to "panics" or "bank runs"
B) Banks can only lend an amount equal to its deposits
C) Banks hold a portion of their deposits in gold
D) Banks can serve the withdrawals of all their depositors

Question

Quizplus · Accepted Answer

Fractional reserve banking allows banks to lend out more money than they actually have in deposits, which can make them vulnerable to "panics" or "bank runs" if too many depositors try to withdraw their money at once. This happened during the Great Depression and other financial crises throughout history.

What Is One Significant Consequence of Fractional Reserve Banking