An individual bank can safely lend out a multiple of its excess reserves, but the banking system can safely lend
out only an amount equal to the excess reserves in the banking system.

Question

Quizplus · Accepted Answer

The banking system can actually safely lend out a multiple of its excess reserves, just like an individual bank. This is because when one bank loans out its excess reserves to another bank, that bank now has more excess reserves that it can then loan out to another bank, and so on. Thus, the entire banking system can safely lend out more than just the initial excess reserves in the system.

An Individual Bank Can Safely Lend Out a Multiple of Its