Most Recent News

Full Reserve Banking: What is a reserve?

In both full reserve banking and fractional reserve banking, we have the adjective of “reserve.” It is this adjective that is part of the fraudulent aspect of fractional reserve banking, as its definition can vary from country to country and even bank to bank.

At the simplest definition, a reserve for a bank defines what the bank holds as security against a depositor’s balance. In a full reserve bank, if you deposit US$10,000, the bank physically stores US$10,000 for you against theft, fire and other calamity. In a fractional reserve, the bank is regulated (usually by the government) in how much it must reserve, but it doesn’t have to reserve the total amount. If the official regulated reserve ratio is set to 10%, the bank must keep at least 10% of your deposit in reserves, but is free to do what it wants with the rest. If you deposit US$10,000 in a fractional reserve bank with a 10% regulated reserve ratio, the bank must keep US$1000 in reserves, but can loan out the other US$9,000.

Read this entire article at the Full Reserve Banking site.