ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Fractional Banking is a banking system that requires banks to hold only a portion of the money deposited with them as reserves. The banks use customer deposits to make new loans and award interest on the deposits made by their customers.

Detailed explanation-2: -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-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: -Banks can’t lend out all the deposits they collect, or they wouldn’t have funds to pay out to depositors. Therefore, they keep primary and secondary reserves. Primary reserves are cash, deposits due from other banks, and the reserves required by the Federal Reserve System.

Detailed explanation-5: -It differs from fractional-reserve banking, in which banks may lend funds on deposit, while fully reserved banks would be required to keep the full amount of each customer’s demand deposits in cash, available for immediate withdrawal.