Part 3/11:
JP Morgan’s CEO has openly warned that more problems—more "cockroaches"—may still emerge. This calls for vigilance from both regulators and consumers, as the hidden risks could trigger a chain reaction if widespread defaults occur.
How the Banking System Operates: The Fractional Reserve Model
To understand the brewing crisis, it’s essential to grasp the basics of how banks operate: fractional reserve banking. Under this system, banks are only required to keep 10% of deposits in reserve. This means if you deposit $1,000, the bank can lend out $900 or invest it elsewhere, borrowing from others to fund loans or purchases.