Fractional Reserve Banking

Bankers are no longer kindly old men in wing collars who keep your money safe and sound, while at the same time lending out other money from their safe to people who need to borrow. Not that they ever were.

Building societies do operate a bit like that, but banks are more like alchemists. They have been granted the legal power to give out far more in loans than they actually hold on deposit.

This is because of Fractional Reserve Banking, which is [explained in detail here].

In Fractional Reserve, the bank can lend out multiples of their own capital reserve sums (it used to be five times; now in the UK it is more like 30 times).

This is one of the factors behind the current instability in the financial markets.