A short spoken explanation of fractional reserve banking: commercial banks keep only a fraction of depositors' funds as reserves and lend out the remainder, which enables lending beyond on-hand deposits and can create vulnerability to bank runs and contribute to inflationary pressure. The speaker warns the system is not ideal and can cause problems if many depositors demand funds simultaneously.
I've heard about this thing called fractional reserve banking. Just what is fractional reserve banking? Basically, it is a system in the banking industry that allows the commercial banking sector to only maintain a fraction of the amount of money on deposits versus what they're able to lend. In other words, they can lend much more than they have to maintain on hand for the deposits that they have. So if you have 10 grand in a bank, in a savings account or checking account, that's your deposit, they can lend much more than that, technically, out into the open marketplace. So if you wanted to go and demand your deposits, they would not have enough deposits on hand for all the different people at that bank to service what's available. So it could create a real problem or a run on the banks. So fractional reserve banking, certainly. Google it. It is not an ideal situation that can potentially cause rampant inflation.
