Fractional-Reserve Banking
Fractional-reserve banking is taking deposits and holding only a fraction in reserves or liquid assets — credit creation with a run risk.
Definition
Fractional-Reserve Banking refers to reserve banking is taking deposits and holding only a fraction in reserves or liquid assets — credit creation with a run risk. Keep that definition fixed when comparing series, managers, or regimes — renaming the same tape does not create a new signal.
Why it matters
Bank funding and deposit behavior transmit stress into credit supply and asset prices. When reserve banking is taking deposits and holding only a fraction in reserves or liquid assets — credit creation with a run risk shifts, related hedges, limits, and narratives usually need an explicit update rather than a quiet assumption.
Case
Suppose a desk is positioned for the opposite of what fractional-reserve banking is saying. If reserve banking is taking deposits and holding only a fraction in reserves or liquid assets — credit creation with a run risk moves against that book, the first question is not “is the story clever?” but whether size, hedges, and stop logic still match the observation.
How to read it
Pair with deposit betas, wholesale funding, and regulatory ratios before calling a scare over. Prefer a short written null hypothesis for Fractional-Reserve Banking: what would falsify the current reading in the next window?
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