ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Fractional reserve banking is a system in which only a fraction of bank deposits are required to be available for withdrawal. Banks only need to keep a specific amount of cash on hand and can create loans from the money you deposit. Fractional reserves work to expand the economy by freeing capital for lending.

Detailed explanation-2: -It is not required to keep all the deposits in the bank’s cash vault. Instead, banks are required to keep 10% of the deposits, i.e., $100, as reserves, and may lend out the other $900. The Federal Reserve sets the reserve requirement as one of the tools for guiding monetary policy.

Detailed explanation-3: -Fractional Reserve Banking and How It Works Fractional reserve banking is a system where banks are only required to keep a fraction of bank deposits on hand. That means your bank holds a percentage of your money, lending the rest of it out or investing the money to grow their total available funds.

Detailed explanation-4: -The cash balance that is to be maintained by scheduled banks with the RBI should not be less than 4% of the total NDTL, which is the Net Demand and Time Liabilities. This is done on a fortnightly basis. NDTL refers to the total demand and time liabilities (deposits) that are held by the banks.

Detailed explanation-5: -To enhance liquidity and deter bank runs. To help fund the Federal Deposit Insurance Corporation, which insures bank deposits. To give the Fed control over the lending ability of commercial banks.