fractional banking

fractional banking

a BANKING SYSTEM in which banks maintain a minimum RESERVE ASSET RATIO in order to ensure that they have adequate liquidity to meet customers’ cash demands. See COMMERCIAL BANK.
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An analyst, Kirk Leigh regretted that when old worn-out notes are being surreptitiously channelled back into the system, there are no records of the 'transactions' and the immediate implication is that the Central Bank has an inaccurate, amount of currency in circulation and therefore has no control of aspects of monetary policy couched on fractional banking and interest rates.
So-called fractional banking means that these institutions maintain only a modest proportion of funds in liquid form, while pumping substantially unbacked credit to consumers and businesses alike, besides their investment portfolios and other exposures.
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