Fractional Reserve Banking Infographic

Fractional Reserve Banking is the banking system most countries use today.

It requires banks to hold only a fraction of the money their customers deposit. That amount is called the reserve requirement, and in most countries the central bank decides the percentage or ratio.

 

Banks can then loan the rest of the deposits they receive to other customers or businesses. In addition, when a bank makes a loan “it creates the money out of thin air”. It does not actually hold that amount of money in the bank.

 

As long customers pay back their loans, the system continues. This practice is said to benefit the economy because it expands the money supply and aids in the movement of goods and services as shown in the infographic below.

 

To illustrate fractional reserve banking in the simplest form, we use a reserve requirement of 20%, although many countries’ banking systems require only 10% or less.

 

 

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The problem with fractional reserve banking occurs when people lose confidence in their bank or they have heard rumors of trouble at their bank. Customers rush in to withdraw their money which is called a run on the bank.

 

If every customer demands their money back, the bank is unable to cover all those cash withdrawals. For example, if the bank holds 20% in bank reserves as our infographic shows, there is not enough cash in the bank to meet the customers’ withdrawal requests.

 

Since 2011 there have been bank runs in Sweden, China, Bulgaria, Greece, and most recently Italy.

 

 

I believe the best investment we can make is in our financial education.

Many financial advisors encourage clients to park a small portion of their portfolio in precious metals such as gold outside the banking system as a wealth protection “insurance”.

Let me show you how to set up your private gold savings account.

 

Believe for the best. Prepare for the worst.

Let’s talk.  Was the infographic helpful to you? Leave comments below.

good money

 

 

 

 

757-310-9175

jameslawson.ws@gmail.com

 

 

Disclaimer:

I am an independent affiliate and not a financial planner or investment advisor. The information on this site is for educational purposes and not intended to give financial, investment, legal, or tax advice. The postings on my blog are my personal opinions and do not represent the positions, strategies and opinions of any company.

 

 

14 Comments

  • Dr. Lisa Thompson

    Reply Reply January 25, 2016

    Wow – that was an eye-opening infographic!

    Thanks for sharing 🙂

    Dr. Lisa

    • jameslawson.ws@gmail.com

      Reply Reply January 25, 2016

      Thanks Lisa for the support!

  • Roxann

    Reply Reply January 25, 2016

    Very informative & what an eye opener! Thanks for sharing your awesome post 🙂

    • jameslawson.ws@gmail.com

      Reply Reply January 26, 2016

      Thanks for your comments Roxann!

  • Tammy Blomsterberg

    Reply Reply January 25, 2016

    Thanks for sharing this! Great information!

    • jameslawson.ws@gmail.com

      Reply Reply January 26, 2016

      Appreciate your comments Tammy!

  • Jumair Macabago

    Reply Reply January 25, 2016

    Wow! I’m amaze on how it works… by just the 100 dollar Joe savings… 😀 thanks for sharing this James, I will personally share this on my Facebook Fan page.. 🙂

    • jameslawson.ws@gmail.com

      Reply Reply January 26, 2016

      Appreciate you sharing this on your FB Fan page, Jumair! Thanks for your comments!

  • Ruthanne

    Reply Reply January 26, 2016

    The infographic really drove your point home, thanks!

    • jameslawson.ws@gmail.com

      Reply Reply January 26, 2016

      Glad it was helpful Ruthanne. Thanks for the feedback!

  • John English

    Reply Reply January 26, 2016

    Thank you for sharing this detailed and very informative post James.

    • jameslawson.ws@gmail.com

      Reply Reply January 26, 2016

      Glad you found the information useful, John. Thanks for your comments.

  • Fonda Waddell

    Reply Reply February 10, 2016

    WOW!! Great visualization James on understanding the process of fractional reserve banking. Pictures are worth a thousands of words. BOOKMARKED!

    • jameslawson.ws@gmail.com

      Reply Reply February 10, 2016

      Thanks Fonda!

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