Fractional reserve banking refers to a system in which the depository institution

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Fractional reserve banking refers to a system in which the depository institution holds reserves less than its deposits. This means that a bank is required to hold only a fraction of the total deposits it receives as reserves and can lend out the remaining funds. For example, if a bank has a reserve requirement of 10%, and it receives a deposit of $100, it can lend out $90 and keep $10 as reserves. This system allows banks to create new money through loans and increase the money supply in the economy.

Fractional Reserve Banking Refers to a System in Which the Depository