#FractionalReserveBanking allows banks to lend out a portion of the deposits they receive while keeping only a fraction in reserve. When a $100 deposit is made, the bank is required to keep a fraction, let's say 10%, in reserve, or $10, and can lend out the remaining $90.

The borrower then deposits the $90 into another bank, which can again lend out a portion, say 90% of $90, or $81, while keeping $9 in reserve. This process repeats, with each iteration allowing for more lending and deposit creation.

Through this cycle, the initial $100 deposit can effectively create up to $1000 in new deposits within the banking system, known as the money multiplier effect.