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TheStreet Open House

How Banks Make Money

When the goldsmiths realized that they could lend out more receipts than the gold they were actually storing, fractional reserve banking was born. As long as the goldsmiths kept enough gold to redeem those receipts that were presented for payment, the system worked.

The Federal Reserve Act of 1913

Fast forward to 1913. In this year, the Federal Reserve Act was passed, which created the central banking system and the Federal Reserve note as a single paper currency in the United States. The Federal Reserve Act established parameters for the reserve requirements for U.S. banks.

You can learn more about fractional reserve banking and the Federal Reserve by visiting the links at the end of the transcript for this episode.

Cha-ching! That's all for now, courtesy of Money Girl, your guide to a richer life.

As always, everyone's situation is different, so be sure to consult a tax or financial advisor before making important financial decisions. This podcast is for educational purposes only and is not intended to be a substitute for seeking personalized, professional advice.

Related links:
The Federal Reserve Act of 1913
The Money Masters

Elizabeth Carlassare is the creator of the Money Girl podcast. A business and technology writer, investor, and former mortgage loan officer, she has a long-standing passion for helping people make the most of their money. She is the author of the Internet business book, "Dotcom Divas," and has been interviewed on more than 60 regional and national radio programs, and featured on C-SPAN Book TV. Elizabeth holds an M.S. from the University of California, Berkeley. She has spoken internationally on the topic of women's entrepreneurship and access to capital. To request a topic or share a money tip, send an email to money@qdnow.com or call 877-6-RICHER.
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