Which of the following correctly describes fractional reserve banking?
A) The federal government only insures a fraction of the deposits at most banks.
B) Banks keep a fraction of their loans with other banks to maintain the quality of their loan portfolio.
C) Banks can loan out all but a small fraction of its own money, but must hold all money deposited at the bank on reserve in bank vaults.
D) Banks can loan out all but a fraction of its own money, but must hold all money deposited at the bank on reserve in bank vaults.

Question

Quizplus · Accepted Answer

Fractional reserve banking is a banking system where banks only have to keep a fraction of deposits in reserve (usually around 10%) and can loan out the rest. This means banks can loan out all but a fraction of their own money, but must hold all money deposited at the bank on reserve in bank vaults.

Which of the Following Correctly Describes Fractional Reserve Banking