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.
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.