modern fractional - reserve banking

let us return to our early goldsmith-banker to see how modern banks gradually evolved .If he were an alert fellow , he would soon notice that ,although his deposits are payable on demand , they are not all withdrawn together . he would soon learn that, although 100 per cent reserves are necessary if the bank is to be liquidated and all depositors are to be paid off in full , such reserve are not at all necessary if his bank is a " going concern" as already seen , new deposits tend to balance withdrawals . Only a little till money ,perhaps less than 2 per cent, normally seems needed in the from of cash.
At first he probably thought this discovery too good to be true . then perhaps he recalled the story of rival bank whose dishonest clerk ran off with 95 per cent of its cash reserve-which was not discovered for a dozen years . No one ever had occasion to go to the back rooms of the vault because all withdrawals were financed by recently deposited money held in the front vaults.