Final answer:
The major difference between full reserve banking and fractional reserve banking lies in the reserve requirements imposed on banks.
Step-by-step explanation:
In the banking system, there are two main types: full reserve banking and fractional reserve banking. The major difference between them lies in reserve requirements. Full reserve banking requires banks to hold one hundred percent of their deposits as reserves, while fractional reserve banking only requires banks to hold a fraction of their deposits as reserves.
For example, if a bank receives $100 in deposits, a full reserve bank would be required to keep the entire $100 as reserves, meaning they cannot lend or invest that money. On the other hand, a fractional reserve bank might be required to keep only 10% ($10) as reserves, allowing them to use the remaining 90% ($90) for lending and investment activities.
Therefore, the major difference between full reserve banking and fractional reserve banking is the reserve requirements imposed on banks.