Fractional Reserve Banking
Also called: fractional reserve, money multiplier
Fractional reserve banking is the practice of holding only a fraction of deposits as reserves and lending out the rest, which is how bank lending creates money. The textbook money multiplier is a simplification: in modern systems, banks lend first and find reserves after, constrained by capital and demand rather than by a reserve ratio. Several central banks have set that ratio to zero without any consequence for money creation.