What is Fractional Reserve Banking? (Explained)

The U.S. banking system follows a fractional reserve banking model. Like most banking systems in the world, this banking model is often not understood. So what is fractional reserve banking? It simply means banks are only required to keep a fraction of funds in the bank while they lend out the rest. Why is our banking system like this, and what are the pros and cons of having a fractional reserve banking system?

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