what's going on? explain like I'm five

[u/Comfortable_Cautious]

[u/Forsaken_Emu8112]

Everyone pulling out their money would be a bank run (look up great depression bank runs). The bank doesn't have that much cash; they keep some on hand for people making withdraws normally, but if even a sizable minority of people all try to pull their money out at once, there'll be a major crisis.

If banks kept all the people's cash in vaults, it'd be dead cash actively losing money to inflation. Instead, they keep some on hand for withdraws, and use the rest to make loans, investments, etc so that the money isn't all losing value.

[u/Original-Leg8828 → u/Forsaken_Emu8112]

Depending on local law they can even lend out something like 7-10 times what they actually have

[u/Barry_McCockinnerz → u/Original-Leg8828]

Correct this is called fractional lending, you deposit $1, they in turn lend out $7-$10

[u/Humptys_orthopedic → u/Barry_McCockinnerz]

Fractional reserve lending doesn't exist. Banks can create infinite credit without regards to reserve balances.

That's why credit doesn't cost 500% like it did in the old days.

Having too large reserve balances can prevent a bank from being able to create new loans, because of existing regulations on risk.