Stabilising fractional reserve bankingWritten by Abdul Karim Abdullah
The modern banking system is known as the “fractional reserve system.” The reason is that in this system, financial institutions are legally permitted to take a certain amount of risk with their depositors’ funds. This risk arises from lending the vast majority of deposits out at interest to various parties willing to borrow. The shareholders of financial institution earn interest income by making loans using depositors’ savings to borrowers at rates higher than those they pay to depositors............. Download the full article in pdf attachment (below)
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Abdul Karim Abdullah @ Leslie Terebessy is an Assistant Research Fellow at IAIS Malaysia.