Criticism Of Fractional Reserve Banking
Fractional-reserve banking is the practice whereby banks retain only a portion of their customers' deposits as readily available reserves (currency or deposits at the central bank) from which to satisfy demands for payment. The remainder of customer-deposited funds are used to fund investments or loans the bank makes to other customers. Most of these funds are later redeposited into banks, allowing further lending. Thus, fractional-reserve banking permits the money supply to grow to a multiple of the underlying reserves of base money originally created by the central bank.
Most central banks and other monetary authorities regulate bank credit creation, imposing reserve requirements and other capital adequacy ratios. This limits the amount of money creation that occurs in the commercial banking system, and ensures that banks have enough funds to meet the demand for withdrawals. To mitigate the risks of bank runs (when a large proportion of depositors seek withdrawal of their demand deposits at the same time) or, when problems are extreme and widespread, systemic crises, the governments of most countries regulate and oversee commercial banks, provide deposit insurance and act as lender of last resort to commercial banks.
Fractional-reserve banking is the current form of banking in all countries worldwide.
Read more about Criticism Of Fractional Reserve Banking: History, How It Works, Economic Function, Money Creation Process, Money Supplies Around The World, Regulation, Hypothetical Example of A Bank Balance Sheet and Financial Ratios, Criticisms
Famous quotes containing the words criticism of, criticism, fractional, reserve and/or banking:
“The critic lives at second hand. He writes about. The poem, the novel, or the play must be given to him; criticism exists by the grace of other men’s genius. By virtue of style, criticism can itself become literature. But usually this occurs only when the writer is acting as critic of his own work or as outrider to his own poetics, when the criticism of Coleridge is work in progress or that of T.S. Eliot propaganda.”
—George Steiner (b. 1929)
“I am opposed to writing about the private lives of living authors and psychoanalyzing them while they are alive. Criticism is getting all mixed up with a combination of the Junior F.B.I.- men, discards from Freud and Jung and a sort of Columnist peep- hole and missing laundry list school.... Every young English professor sees gold in them dirty sheets now. Imagine what they can do with the soiled sheets of four legal beds by the same writer and you can see why their tongues are slavering.”
—Ernest Hemingway (1899–1961)
“Hummingbird
stay for a fractional sharp
sweetness, and’s gone, can’t take
more than that.”
—Denise Levertov (b. 1923)
“If a walker is indeed an individualist there is nowhere he can’t go at dawn and not many places he can’t go at noon. But just as it demeans life to live alongside a great river you can no longer swim in or drink from, to be crowded into safer areas and hours takes much of the gloss off walking—one sport you shouldn’t have to reserve a time and a court for.”
—Edward Hoagland (b. 1932)
“One of the reforms to be carried out during the incoming administration is a change in our monetary and banking laws, so as to secure greater elasticity in the forms of currency available for trade and to prevent the limitations of law from operating to increase the embarrassment of a financial panic.”
—William Howard Taft (1857–1930)