FRACTIONAL RESERVE BANKING

All banks must keep a reserve of currency on hand for withdrawals.  The Federal Reserve sets that reserve limit. If a bank reserve limit is set at 10 percent, for example, it is allowed to loan out 90 percent of its deposits. Banks don’t loan out the currency in its accounts, they create new fiat dollars out of thin air and loan them out.  They borrow money into existence to loan it to customers.

If you deposit $1000 into the bank, it can create 900 new credit dollars by only making a book entry. It then loans out this created money with interest. This is repeated every single time a deposit is made.

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