Which accurately describes the requirements banks must meet under a fractional reserve banking system?

Banks must get government approval for all loans.

Banks reserve the right to raise interest rates at any time.

Banks must pay a specific fraction of their assets in taxes.

Banks must keep a specific percentage of deposits on hand.

Question

Business

Emilia Chavez

10 June, 20:21

Which accurately describes the requirements banks must meet under a fractional reserve banking system?

Banks must get government approval for all loans.

Banks reserve the right to raise interest rates at any time.

Banks must pay a specific fraction of their assets in taxes.

Banks must keep a specific percentage of deposits on hand.

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Answers (1)

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Alondra Beck · Answer 1

Banks must keep a specific percentage of deposits on hand.

A fractional reserve banking system is a requirement by the government in order to improve and maintain bank liquidity. By requiring banks to keep a specific percentage of deposits on hand, the government protects banks and their clients from the banks being insolvent from too many demands. This fractional reserve means that banks cannot lend all of their capital or funds in case of unexpected client demand in the future.