Fractional reserve banking system
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Regulatory Capital Anatomy™
The JC’s untutored thoughts on how bank capital works.
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The existing general banking system, in which banks must hold a fraction of their deposits as capital reserves — hence, a fractional reserve — but can lend out the rest.
Nocoiners will tell you that this prevents bank runs, enhances stability in the banking system, and therefore plays a crucial role in the global economy.
Bitcoin maximalists will tell you things like “the whole affair is subsidised my self-referentially mispriced toxic loans, courtesy of commercial fractional reserve banks guaranteed by a central bank,” whereas “Bitcoin is the internet, extended to the communication of value, furiously wrestling value back from the feudal client/server architecture of fractional reserve and central banking.”
Sigh.