Fractional Reserve Banking Explained in One Minute

A one-minute video explanation of fractional reserve banking. As you'll be able to find out, commercial banks and not central banks create most of the money (some people would prefer using brackets before and after the word) in existence through a mechanism called fractional reserve banking.

Fractional reserve banking may seem complicated but understanding the basics isn't all that difficult, as you'll be able to find out.

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[JSmith]

What makes it worse is that the bank now charges interest on the money they create and now has a revenue stream from nothing.

[varlien]

Why is the background music so loud!?!

[gan]

I like how it gets exlpained in this video as if it makes any sense. The whole thing is compltely insane

[miller]

Fractional reserve banking should be a crime, if I or anyone else did this it would be considered as such and we would go to prison. Banks lend out other peoples money and through interest on that lending they take in massive amounts of revenue. Same with quantitative easing it’s just a fancy word for counterfeiting. Plus under all that is the deposit guarantees which is just ludicrous, if the banks go bust the taxpayer bails them out. The banking system is a criminal organisation above everyone else.

[TheDano]

Fun fact, it's neither Federal nor has any reserves.

[suzuakiba]

It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning. - Henry Ford

[higgsboson]

Try applying this concept to your personal checking account and let me know how it works out for you!

[anderol]

Is it just me or is the music really loud?

[zeuskyst]

No matter how many times I watch this video, I will always feel trippy at the end 😅

[brianchanhere]

Doesn’t Mike have to repay his loan with interest though? So how is money “created” in that sense if he has to return whatever he borrowed at the end of the day? thanks

[paulli]

Commercial banking couldnt create wealth without people trusting it's system. It's people's trust in one another that creates wealth.

[DillingerEscp]

Love the video. But the music is a bit loud. Might want to turn it down a bit.

[abemore]

If I deposit $1000, and $900 is loaned out/created, can I then withdrawal and redeposit my same $1000 causing the bank to loan out a second $900 on the same money?

[nsynuxu]

So basically if people didn't pay back their loans the system would fail.

[mauriciologa]

A deposits 100 and B (who has initially nothing) borrows 90, which the bank creates on top of A's deposit. B uses those 90 to pay for food that A grows, which B pays directly into A's account, finding its way back to the same bank (the loan is indirectly repaid) but that money still belongs to A. That could be the end of the story. Money was created in proportion to the tangible value of A's produce, real value that B solicited. A has also got to eat so it takes out those 90, the next day, to now buy B's produce. Those 90 initially created by the bank become B's when B offers tangible value to the market.

...But it goes like this: A has also got to eat, so the next day, it takes those 90 out of his account to, now, buy food B grew, which B uses to repay his loan and the bank has 190 again. Since in theory B owns no money it will have to borrow 90 again to eat the next day. The bank will create new 90 on top of the 190 (since it can loan up to 171). With B's 3rd loan the bank will make 470. So the 100 become infinite and B is infinitely in debt?

If the aim of creating money is growing the economy, shouldn't only a small percentage of that be returned to the "banker"... or nothing at all? For instance, If people's accounts could automatically issue them 90% more of what they have (or, perhaps, a percentage relative to the part of total money in circulation you own to prevent inflation) for them to spend. As long as they "repaid themselves" before another loan there would be no inflation, that would mean they are producing and money expanding in proportion to goods or services; so only after repaying themselves (creating into something tangible that new 90%) they would get a new " auto loan" or increment. Perhaps this is a mistaken example but the idea is that money creation dynamics could be better.

[cramsa]

If you believe this system is stable, you're crazy...

[nigelstanford]

If John deposits $1, 000 and Mike borrows $900…how is there $1, 900 in the system?

[AymaneElBahloul]

why there's $1900 in the financial system while we have only deposit $1000?

[HipHopShortyRock]

Is the U.S. Government in debt to the federal reserve bank? Is the federal reserve bank loaning federal reserve notes to the U.S. Government at interest?

[kandels]

I just googled the minimum reserve requierements of the EU. It's at 1%

Does that mean if I deposit 1000€ the bank only has to store 10€ ?! And can do the same thing explained with the video just with 990€ instead of 900€?!