If you're seeing this message, it means we're having trouble loading external resources for Khan Academy.

If you're behind a web filter, please make sure that the domains *.kastatic.org and *.kasandbox.org are unblocked.

Fractional reserve banking

3 videos
Most modern economies use a counter-intuitive model of banking called "fractional reserve banking." It is counter-intuitive (and some people would say wrong) because it allows banks to lend out money that it tells depositors is available at any time and essentially involves private banks in money creation. It also creates the possibility of mass instability through bank runs that tend to be mitigated through government regulation and insurance (some would say government subsidy of banks). This tutorial explains how fractional reserve lending works and outlines the good and bad. It also talks about the alternative of full reserve banking.

Overview of fractional reserve banking

VIDEO 8:28 minutes
Big picture of how money enters circulation and how lending can increase the money supply

Weaknesses of fractional reserve lending

VIDEO 7:34 minutes
Weaknesses of Fractional Reserve Lending

Full reserve banking

VIDEO 7:32 minutes
Overview of full reserve banking in comparison to fractional reserve banking