Fractional reserve banking
Fractional reserve banking: A banking system in which banks hold only part of their deposits as reserves and lend the rest. When a bank makes a loan, it credits the borrower's account, creating a new deposit. The Federal Reserve Bank of Chicago's Modern Money Mechanics explained that banks "do not really pay out loans from the money they receive as deposits." Courts have held that this does not cancel a borrower's duty to repay.
What fractional reserve banking means
In short, fractional reserve banking is a term you will meet in court papers, rules and legal research. The definition above gives its usual meaning in American civil practice. However, the exact meaning can depend on the rule, statute or court decision that uses it. So it helps to read the term in context.
Where fractional reserve banking comes up
The term is used across many kinds of cases. For example, you may see it in pleadings, motions and court orders. To see it in context, browse the motions and procedures library or the Learn the Law topics.
Read the source: Federal Reserve.
How to research the term
Start with the primary source. For example, if fractional reserve banking appears in a federal rule, read the rule itself and its official notes. After that, check your court’s local rules and any standing orders from the judge. In addition, search recent decisions from your own state or federal district. They show how courts read fractional reserve banking in practice. Because state rules often differ, our state procedures guide links to each state’s official rules. Above all, make sure the version you read is still in force.
You can read the current federal court rules online for free.
Related legal terms
- Foreign national: a person who is a citizen or national of a country other than the United States.
- Foreign trust: for U.S. tax purposes, a trust that does not meet two tests: a U.S. court can exercise primary supervision over it, and one or more U.S. persons control all of its substantial decisions (26 U.S.C. § 7701(a)(30)(E) and (a)(31)(B)).
- Forward flow agreement: a contract under which a seller agrees to sell, and a buyer to buy, receivables on a recurring schedule on terms set in advance.
- Fourteenth Amendment: the 1868 amendment that made all persons born or naturalized in the United States, and subject to its jurisdiction, "citizens of the United States and of the State wherein they reside," and that forbids states to abridge the privileges or immunities of citizens, deprive any person of life, liberty or property without due process of law, or deny any person the equal protection of the laws.
Why precise terms matter
Legal words often look like everyday words, but they can carry a precise meaning. Because of that, a small misreading can change how you understand a deadline, a duty or a right. Our glossary keeps each definition short and links it to the procedures where it matters.
Sources
Sources last reviewed: 2026-10-24
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