Question

Fractional reserve banking means banks hold on to only a small fraction of

the deposits they receive, loaning out the rest. This type of system will fall
apart if:

Answer 1

Fractional reserve banking is at risk of falling apart if there is a sudden rush of depositors wanting to withdraw their money. Banks can protect themselves by diversifying their loans or holding a greater proportion of their assets in bonds and reserves. During a recession, banks may hold a higher proportion of reserves to mitigate the risk of loan defaults and bank failures.

Step-by-step explanation:

Fractional reserve banking is a system where banks hold only a small fraction of the deposits they receive and loan out the rest. This system is at risk of falling apart if there is a sudden rush of depositors wanting to withdraw their money due to fear or uncertainty. If many depositors withdraw their money at the same time, the bank may not be able to meet their demands and may fail.

Banks can protect themselves against this risk by diversifying their loans or holding a greater proportion of their assets in bonds and reserves. By holding a larger proportion of reserves, banks can ensure they have enough money to meet the demands of depositors even during uncertain times.

For example, during a recession, banks may hold a higher proportion of reserves because they fear that customers are less likely to repay loans when the economy is slow. This cautious approach helps banks mitigate the risk of potential loan defaults and bank failures.

Answer 2

Answer: if too many people ask for money, and there is not enough

Step-by-step explanation:

The Great Depression was one of the biggest bank runs where too many people TRIED to withdraw their money, but if there wasn't enough money the bank owes too many people many, like the Great Depression.