Verbull Word of the day
Finance glossary

Fractional Reserve Banking

Banking · advanced
Definition

Banks keeping only a fraction of deposits and lending the rest.

Under fractional reserve banking, banks hold only a portion of deposits in reserve and lend out the rest, effectively creating money as loans circulate. It expands credit and growth but makes banks vulnerable to runs if too many depositors withdraw at once.

In a sentence

Under fractional reserve banking, the bank kept a sliver of deposits and lent the rest back out.

Play today's puzzle →
Verbull app icon
Get a word like this every morning
Word of the Day on your Home Screen, with quizzes and flashcards. Get the app →