4051 moodlecwedu percentage a fraction of that money on rese

4:051 moodle.cw.edu percentage, a fraction, of that money on reserve at the bank, but the bank can lend the rest out. For instance, if you deposit $100,000 at the bank and the bank has a reserve requirement of 10 percent, the bank must keep $10,000 of your money on reserve and can lend out the $90,000. The recent (early 2009) banking problems can primarily be traced to banks not being held accountable for bad loans. They were allowed to sell off their loans to Freddie Mac and Fannie Mae and thus escape the penalties normally incurred by a lender. Those sold loans were later turned into the toxic securities that threatened to extinguish our entire economy. Now think about the video that you watched which depicts the run on the banks during the depression and the credit crisis of 2009. In our modern banking system, banks are only required to keep a small fraction of their deposits on reserve in case depositors wish to withdraw their deposits. Why shouldn\'t banks keep all of our money? Who is protected by the reserves? Post your response by 11:55pm on Thursday Respond by 11:55pm on Sunday, to two or more of your classmates\' postings in one of the following ways: Ask a clarifying or probing question read your

Solution

Banks shouldn\'t keep all the money of the depositors with themselves as this will defeat their very basic purpose of existence. The purpose of existence of banks is to borrow money from depositors and lend it to the businesses. If they were to keep all the funds with themselves then the economy would not grow as there would be no money multiplication and no production as businesses wouldn\'t have enough money to buy the needed resources. Therefore, it is necessary for the banks to lend most of the money for the growth of the economy.

Only some part of the deposits is kept as reserves as it is highly unlikely that all the depositors would come the same day to withdraw all the their money. So, a part is kept as reserve in case some depositors come to withdraw their money for contingent(emergency etc.) or any other use.