what is fractional reserve banking system
DEFINITION of 'Fractional Reserve Banking'. A banking system in which only a fraction of bank deposits are backed by actual cash-on-hand and are available for withdrawal. This is done to expand the economy by freeing up capital that can be loaned out to other parties.Most countries operate under this type of system. banking system in which only a fraction of bank deposits are backed by actual cash-on-hand and are available for withdrawal.