The Regional Bank Crisis and its Repercussions on Crypto

Fractional Reserve Banking is the system in which banks keep only a fraction of their deposits on reserve and lend out the rest. U.S. banks must keep a minimum reserve ratio of 10% of their total deposits. The reserve requirement is set by the Federal Reserve and can be adjusted periodically to influence the money supply and inflation.

Customers' deposits in the bank are on-demand deposits, which the depositor can take back at any time. However, fractional reserve banking allows banks to loan the money deposited by customers to other financial institutions, which does not constitute an on-demand redemption. This loan will be returned to the bank at a predefined set time. These financial agreements between the bank - the lender, and the financial institute - the borrower, have a longer maturity than the original on-demand deal between the depositor and the bank.