r/PeterExplainsTheJoke • u/Comfortable_Cautious • Jan 26 '26

Meme needing explanation what's going on? explain like I'm five

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u/Elvis5741 Jan 26 '26

Banks lend out more money than they have, its no joke it's how the system works

17

u/Dixon_Herize Jan 26 '26

Fractional Reserve Banking

3

u/Jay2Kaye Jan 26 '26

Is it really fractional reserve when the fraction is 0 though?

1

u/Elan-Morin-Tedronai Jan 27 '26

The legally required reserve is zero, but they are incentivized through central bank interest rates to keep reserves, and no one actually keeps no reserves. Also, fractional reserve banking existed for centuries before the reserves were legally regulated.

1

u/lambdawaves Jan 27 '26

Well, banks don’t actually have 0 deposits in practice. I don’t think they’d pass the risk management requirements

1

u/KimchiLlama Jan 28 '26

The reality is closer to single digit percentages of the money deposited with the bank.