Bitcoin-enforces-sound-money-peacefully on Nostr: Fractional reserve banking, in which banks hold only a fraction of their deposits in ...

Fractional reserve banking, in which banks hold only a fraction of their deposits in reserve and lend out the remainder, has been practiced in various forms for centuries. However, it became more widespread and formalized with the development of modern banking systems.

In the United States, fractional reserve banking emerged gradually as the banking sector evolved during the 19th century. The First Bank of the United States, chartered in 1791, and its successor, the Second Bank of the United States, chartered in 1816, both operated under fractional reserve principles.

However, it was during the Free Banking Era (1837-1863) and after the establishment of the National Banking System with the National Currency Acts of 1863 and 1864 that fractional reserve banking became more prevalent. The National Banking Acts provided for the creation of national banks, which were required to hold a portion of their reserves in the form of government bonds but could also engage in fractional reserve banking.

The Federal Reserve System, established in 1913, further institutionalized fractional reserve banking in the United States. The Federal Reserve Act empowered the Federal Reserve to regulate the banking system, set reserve requirements, and act as a lender of last resort, facilitating the expansion of credit and the practice of fractional reserve banking.

Overall, while fractional reserve banking had roots in earlier banking practices, it became more formalized and widespread in the United States during the 19th and early 20th centuries, particularly with the development of national banking systems and the establishment of central banking institutions like the Federal Reserve.

Courtesy ChatGPT