Full Reserve Banking is a banking system where banks hold 100% of customer deposits as reserves, ensuring all funds are available for immediate withdrawal. This contrasts with fractional reserve banking, where banks lend most deposits and hold only a fraction in reserve.
How it works
Banks maintain cash or liquid assets equal to every dollar deposited. They cannot use deposits for lending. This eliminates the risk of bank runs but restricts credit availability in the broader economy.
For traders
Full reserve banking would increase deposit safety but likely raise bank fees. Brokers operating under such systems would have limited leverage from fractional lending, potentially affecting trading leverage and market liquidity.
Comparison
| Model | Reserve Level | Lending Practices | Bank Run Risk |
|---|---|---|---|
| Full Reserve | 100% | Limited | None |
| Fractional Reserve | Fraction | Extensive | Present |
