A bank's assets equal its liabilities under
A)both 100-percent-reserve banking and fractional-reserve banking.
B)100-percent-reserve banking but not under fractional-reserve banking.
C)fractional-reserve banking but not under 100-percent-reserve banking.
D)neither 100-percent-reserve banking nor fractional-reserve banking.

Question

Quizplus · Accepted Answer

Under 100-percent-reserve banking, banks are required to hold reserves equal to 100% of their deposits. This means that they cannot lend out any of the money that they deposit. As a result, their assets (which consist of reserves) are equal to their liabilities (which consist of deposits). Under fractional-reserve banking, banks are only required to hold a fraction of their deposits as reserves. This means that they can lend out the rest of the money that they deposit. As a result, their assets (which consist of reserves and loans) are greater than their liabilities (which consist of deposits).

A Bank's Assets Equal Its Liabilities Under