What is a fractional reserve system?

The fractional reserve system is a banking system in which commercial banks maintain only a fraction of the money they hold in the central bank. This modern banking system is used throughout the world in a certain form. While a fractional reserve system is the most popular arrangement of commercial banking, it is not without risks. One of the main risks of engaging in the fractional reserve system is that the collapse may be caused by banking operations at institutions participating in this form of banking. In this system there is only a fraction of the total cash offer of the bank in the central bank in the country where the Komerční banka is located. The central bank determines the minimum amount of the reserve and is determined in monetary policy, to which all banks must follow in a particular country.

historically, banks used other systems such as gold pads. However, most countries around the world work using a certain fractional REsser system. Due to religious beliefs against earnings and collecting interest on borrowed money, the banks working in Islamic countries deal with slightly differently than commercial banks found in other non -Islamic countries. However, a certain variation of the fractional reserve system is still used in Islamic countries.

Although the fractional reserve system is widely used throughout the world, it is still not a perfect system, because the potential for complete bank collapse is always possible. One main risk factor related to this system includes running in a bank where customers who are concerned about bank bankruptcy can all require account selections simultaneously, ie a Creating lack of money available for collection, creating a kind of self -realization of prophecy. Such widespread activities can be triggered by financial forecasts predicting the bank's failure and cause mass panic among banking customers. While risks such as banking run are in the fractional resident systemRVY owns, many central banks are ready for such events and provides deposits. Some central banks are also willing to provide loans to banks when they run to prevent complete collapse.