Fractional reserve banking

Fractional reserve banking is a system banks use to manage the money their customers deposit. Banks are only required to keep a small fraction (a reserve) of their customers' deposits. This means the bank can lend out most of the money to other customers who want to borrow it. That's how banks make most of their money. When someone borrows money, they must pay it back with interest. The interest the bank earns on these loans is how they make a profit. When the borrower pays back the loan, the money goes back to the bank, and they can use it to lend out again!