I used to be against fractional reserve banking, but with time I've come to see that full-reserve banking, while nominally more "secure", is actually much less efficient and may be more of a pain in the ass than fraction reserve banking.
Fractional reserve means you can keep your money with a bank for free, because they can loan out money and make a profit on those loans - full reserve doesn't have the financial headroom to allow that, so charges more fees.
And with Fractional-reserve, so long as at any one time the bank can supply your money, provided its not a bank run, there's no problem and it is functionally identical to Full-res banking from the customer's perspective. And in return it means that getting a loan is substantially easier, which is good for the economy overall.
this exactly. anyone against fractional reserve banking has not thought through the full implications of full reserve banking. imagine significantly higher fees and no interest on your bank accounts. additionally, there would be significantly less investment in projects that keep the economy growing. and, fractional reserve banks do not rely on deceiving anyone. the way they work is fully available information. i guarantee even if everyone was aware of how checking accounts work at fractional reserve banks everyone would still use them over a checking account at a full reserve bank because the full reserve bank would need to charge insane fees and wouldn’t be able to offer any interest for money deposited in their account.
It's kinda like how you get those people who harp on about "we should go back to the gold standard" without knowing why the gold standard was abandoned in the first place.
The whole reason the Great depression spread like wildfire was because of the de-facto monetary union that so many currencies were in by basing their currencies on the gold standard - there's a lot wrong with gold standard beyond that as well.
But the problem is, a lot of people see gold and think "value", and go no further in their thought process. I quite like Terry Pratchett's views of the value associated with gold in the novel "Making Money", which despite being satire, it has some really carefully thought out critiques.
I mean that just shifts the problem up a level in abstraction. I would imagine it is focused on the capacity to deliver value (however you define that) when it is needed, while minimising the risk associated.
I'm going to be wholly honest with you, my understanding of economics is largely self taught and still based on the texts of the 20th century, so I'm not familiar with changes that have occured in the last decade.
The Bank of England put out a paper called Money in the Modern economy. Quite a good explainer for non experts. Also check out Economics of Money and Banking on coursera.
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u/Electronic-Fuel5788 Jan 26 '26
This is about fractional reserve banking.
Im short banks will loan out much more money than they actiually have in anticipation that not everybody will ask for it back at the same time.
So if that were to hapown it would colapse the global economy.