# Fractional Reserve System?

**URL:** <https://boards.straightdope.com/t/fractional-reserve-system/171366>\
**Category:** Factual Questions\
**Created:** [April 26, 2003, 6:59pm UTC](https://boards.straightdope.com/t/fractional-reserve-system/171366 "2003-04-26T18:59:53Z")\
**Posts on this page:** 4\
**Page:** 2

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**Author:** ![Mines\_Mystique](https://avatars.discourse-cdn.com/v4/letter/m/d26b3c/32.png) [@Mines\_Mystique](https://boards.straightdope.com/u/Mines_Mystique)\
**Post date:** [April 28, 2003, 5:01am UTC](https://boards.straightdope.com/t/fractional-reserve-system/171366/21 "2003-04-28T05:01:43Z")

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Banks can also get loans from other banks if one of their customers requests an amount that is above their limit. They will also invest the money that they get in deposits and in interest in the stock market.

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**Author:** ![MonkeyMensch](https://avatars.discourse-cdn.com/v4/letter/m/82dd89/32.png) [@MonkeyMensch](https://boards.straightdope.com/u/MonkeyMensch)\
**Post date:** [April 28, 2003, 6:01am UTC](https://boards.straightdope.com/t/fractional-reserve-system/171366/22 "2003-04-28T06:01:11Z")

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> [@](#):
>
> \*Originally posted by slipster \*  
> \*\*Yes, banks issue loans in excess of the deposits they have on hand. This is how banking, and the whole concept of a money supply works, honest  
> \*\*

I must offer a slight correction, here. There is a common confusion between _deposits_ and _cash on hand_. Cash in hand refers to, say, what’s in the bank’s vault that day.

_Deposits_ represent the total liability the bank has to its depositors, namely the sum of money that has been deposited in the bank in the depositors accounts.

_Cash on hand_ refers to the physical bucks under the bank’s roof at any point in time.

Referring to

> [@](#):
>
> deposits they have on hand

as **Slipster** put it is to mix two different concepts. I.e., banks _do_ issue loans in excess of their cash on hand; banks _do not_ issue loans in excess of their total deposits.

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**Author:** ![dtilque](https://avatars.discourse-cdn.com/v4/letter/d/d6d6ee/32.png) [@dtilque](https://boards.straightdope.com/u/dtilque)\
**Post date:** [April 28, 2003, 6:19am UTC](https://boards.straightdope.com/t/fractional-reserve-system/171366/23 "2003-04-28T06:19:25Z")

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Ya know, Cecil explained all this years ago: [How much money is there? With the U.S. borrowing so much, why aren’t we broke?](http://www.straightdope.com/classics/a3_163.html)

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**Author:** ![MonkeyMensch](https://avatars.discourse-cdn.com/v4/letter/m/82dd89/32.png) [@MonkeyMensch](https://boards.straightdope.com/u/MonkeyMensch)\
**Post date:** [April 28, 2003, 7:35am UTC](https://boards.straightdope.com/t/fractional-reserve-system/171366/24 "2003-04-28T07:35:12Z")

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Good cite there, **dtilque**. Of course Unca Cece has explained just about everything during his tenure in a clear, if condensed manner. I only posted what I thought addressed the concerns of the banking conspiracists in their paranoia re the money multiplier.

Now as for how the Fed really operates, I recommend _Secrets of the Temple_. Despite the title sounding like an exposè of government intrigue it is a pretty clear explanation of the Fed’s day-to-day role in the American economy.

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