What is fractional reserve banking?

0:00Commercial banking, which is tied up, not just this question of borrowing money and lending them out, or lending out your profits. Commercial banking is also heavily involved in what's called fractional reserve banking, which I call fraudulent reserve banking, where the bank which originally promised to keep the gold, say, which is deposited, deposit banking, promised to keep the gold so that you can demand it at any time. It's like a warehouse. In other words, the original deposit banks were warehouses. Money warehouses, it's like you keep your chair or your watch in a warehouse and get a ticket for it and you can redeem it at any time. In a similar way, you have places which keep your gold or silver coins or bullion, and they give you a warehouse receipt, you can redeem it anytime you want. Unfortunately, over the centuries, what happened was the bankers began to realize that this was a good thing here.

0:49If we take some of this gold and lend it out, there will be none the wiser. And so this is of course what we would call embezzlement in technical legal jargon. And either they would lend the gold or silver out, or else in a more sophisticated variant of this, they would print fake warehouse receipts. In other words, warehouse receipts not backed by gold or silver and lend them out. This is essentially fractional reserve banking.