There is a tradeoff in any banking system between

Question

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When a banking system holds a larger fraction of reserves, it reduces the risk of bank runs and insolvency, but it earns lower profits because it cannot lend out as much money. Therefore, there is a tradeoff between the safety and profitability of a banking system. Holding a larger fraction of reserves is generally considered to be a prudent regulatory policy to prevent systemic risks and financial crises.

There Is a Tradeoff in Any Banking System Between