Question

What is a fractional banking system

Answer 1

Fractional reserve banking is a banking system in which only a fraction of bank deposits are backed by actual cash on hand and are available for withdrawal. This is done to expand the economy by freeing up capital that can be loaned out to other parties.

Answer 2

A fractional banking system is when only a portion of bank deposits are actual cash. Also in a fractional banking system, only a portion of bank deposits are available to be withdrawn. This provides capital that could be loaned to others which in turn expands the economy.