What is Full Reserve Banking?
2 minute read
3 Jun 2021
Why full reserve banking could change the way you handle your money
Banking is one of the oldest institutions and industries in the world, but our concept of banking is still centuries old and hasn’t really evolved. Is it time to change how we bank?
The way it’s always been: what is fractional reserve banking?
Typically, most traditional banks use a system called fractional reserve banking, where customers put their money into a bank and whilst some of their savings are always available in the reserve, the bank can move around their customers’ money digitally as it sees fit.
Whilst this has benefits such as creating and circulating more money, increased liquidity, and capital being available for lending, it also comes with risks.
Banks can lend at their own discretion, which can sometimes have devastating economic impacts, as seen by the 2008 financial crash. Fractional reserve banking is responsible for the boom-and-bust cycle; whilst it can generate money and wealth, it can also lose more money than it has available. When this happens, customers can suffer and sometimes end up losing their savings, as the bank simply cannot give back the amount that customers put in.
As a consequence of the risks attached with fractional reserve banking and the digitalisation of currency, digital banks and fintechs are offering other alternative modes of storing money in a way that protects the customer. That’s where full reserve banking comes in.
A fairer banking system: what is full reserve banking?
Full reserve banking alleviates a lot of the risk attached to fractional reserve banking. When customers put their money into a full reserve bank, their money stays in that reserve and is not loaned out. This means there is little to no risk for the customer, giving them peace of mind and reassurance that their money is not going to be reinvested.
As a result, full reserve banking is typically unscathed by major economic events and volatility in the market and there is tight control on inflation and deflation.
The benefits of full reserve banking
Unlike fractional reserve banking, which is dependent on the market and influenced by other outside factors, full reserve banking allows customers to diversify their financial portfolio with very little risk. This makes full reserve banking more sustainable and much fairer. The money deposited in a full reserve bank only serves to profit its customers and is therefore ethical, as only the customers reap the benefits.
It’s why Zenus Bank operates as a full reserve bank. We believe banking should be more accessible, fair, and ethical. It’s also why we’re proud to be an official Signatory of the UN Principles for Responsible Banking.
If you have any questions, you can reach out to our member services team on +1 833-936-8711 (US toll-free. Open 9-5 EST (we speak English & Spanish).
Alternatively, join Zenus Bank today and benefit from a whole lot more than just full reserve banking.