FRACTIONAL RESERVE SYSTEM (FRS)
\fɹˈakʃənə͡l ɹɪsˈɜːv sˈɪstəm ˌɛfˌɑːɹˈɛs], \fɹˈakʃənəl ɹɪsˈɜːv sˈɪstəm ˌɛfˌɑːɹˈɛs], \f_ɹ_ˈa_k_ʃ_ə_n_əl ɹ_ɪ_s_ˈɜː_v s_ˈɪ_s_t_ə_m__ ˌɛ_f_ˌɑː_ɹ_ˈɛ_s]\
Definitions of FRACTIONAL RESERVE SYSTEM (FRS)
Sort: Oldest first
Modern banking system's monetary policy. Banks hold typically 12 percent cash reserves, only a fraction, against depositors' funds. Banks create deposits by loaning out the remaining 88 percent of deposited funds. This loaning exerts a multiplier effect on the total money supply. Banks loan out the new 88% for new deposits, and so on , and so on .... This policy potentially risks banks to suffer huge losses if there is a bank run. Bankruptcy would likely occur.
By Henry Campbell Black
Word of the day
- The formation and shedding of fine, branlike scales from skin. [Lat.]