Money, banking and the macro-economy - A modern financial system - The role of banks in a fractional reserve system
3 important questions on Money, banking and the macro-economy - A modern financial system - The role of banks in a fractional reserve system
Explain the role of maturity transformation
Savers can access their money on short notice and borrowers can finance long-term projects.
What is a fractional reserve banking system?
Banks hold only a fraction of deposits in liquid form in their reserve accounts at the central bank.
Explain the role of risk pooling
Banks can withstand a certain proportion of defaulting, and hence offer little or no risk to savers.
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