FRACTIONAL-RESERVE BANKING: A system in which banks keep less than 100 percent of their deposits in the form of bank reserves and use the rest for interest-paying loans. Banks in the good old U. S. of A., as well as those in most other modern countries, practice this system of fractional-reserve banking. See also | bank | bank reserves | money supply | money creation | bank panic | Federal Reserve System | Federal Deposit Insurance Corporation | Great Depression | reserves | vault cash | Federal Reserve deposits |
