modern fractional - reserve banking (2)

we can imagine our intelligent banker-at first-beginning to acquire bands and other earning assets with some of the cash entrusted to his care . Everything works out all right : depositors are still paid off on demand , and the bank has made some extra earnings. gradually , the banker no longer feels it is necessary to cancel from his depositors what he is doing. if a depositor complains , the banker retorts , "your money is safe . If you don’t like my way of doing business, you are at liberty to withdraw your funds. Besides ,haven’t you noticed that the new method of fractional cash reserves has enabled me to lower my service charge to you ? Also , it has enabled me to give a helping hand to our Local businessmen who need more capital to buy new tools , building , and inventories .Such capital formation benefits consumers because they get better goods for lower prices . It also creates jobs for works ."
Little wonder , therefore,that banks should want to maximize their profits by putting most of the money deposited with them in earning assets and keeping only fractional cash reserves against deposits.
Indeed,as long as business confidence remains high and bank managers are Judicious in their loans and investment , there is no reason why the bank should keep much more than 2 per cent cash reserves against deposits.