Why do banks practice frictional reserve banking?

1 answer:

8 0

Answer: Fractional-reserve banking allows banks to provide credit, which represent immediate liquidity to depositors. The banks also provide longer-term loans to borrowers, and act as financial intermediaries for those funds.

Explanation:

Fractional reserve banking has pros and cons. It permits banks to use funds (the bulk of deposits) that would be otherwise unused to generate returns in the form of interest rates on loans—and to make more money available to grow the economy.

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