Fractional Reserve Banking
Watch these videos, which explain fractional reserve banking. Be mindful that total reserves are the checkable deposits that the public has placed in a commercial bank. Required reserves are a percentage of the checkable deposits that must remain in a commercial bank as required by the Federal Reserve. Required reserves are set by the Federal Reserve to protect banks from customers running on the bank, i.e., reserves protects a bank from customer panic. Excess reserves are a percentage of checkable deposits that a bank is authorized by the Federal Bank to lend out. Consequently, required reserves are deposits from which the banks earn a profit through the loan and repayment process.
Source: Khan Academy, https://www.khanacademy.org/economics-finance-domain/old-macroeconomics/monetary-system-topic-old/fractional-reserve-banking-tut/v/overview-of-fractional-reserve-banking; https://www.khanacademy.org/economics-finance-domain/old-macroeconomics/monetary-system-topic-old/fractional-reserve-banking-tut/v/full-reserve-banking;
https://www.khanacademy.org/economics-finance-domain/old-macroeconomics/monetary-system-topic-old/factional-reserve-accounting/v/simple-fractional-reserve-accounting-part-1; and https://www.khanacademy.org/economics-finance-domain/old-macroeconomics/monetary-system-topic-old/factional-reserve-accounting/v/simple-fractional-reserve-accounting-part-2
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