The problem is that in a fractional reserve banking system banks are inherently unstable.

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In a fractional reserve banking system, banks are permitted under law to create deposit money out of thin air.

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Also, the central bank and the (fractional reserve) banking system would face a nearly irresistible temptation to use their ability to create money to hold the deflation at bay as long as possible.

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As for the larger Eurozone banking system, it too is a fractional reserve system.

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The Cyprian banking system, like all banking systems today, is a fractional reserve system.

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This is simply true of any system of fractional reserve banking and is the cause of bank runs.

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And the other alternative reading, that they have 32 times as much capital as they do assets makes no sense at all in a system of fractional reserve banking.

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Thus the bank is holding only a fraction of deposits in reserves and is lending out the rest: fractional reserve banking which is what we call the system.

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As for banking, Napolitano calls for an end to fractional reserve banking, and a return to a 100 percent reserve system.

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