The laws allow banks to issue loans up to a certain multiple over their reserves even if they don't have the money at hand. Banks make money from loans and the interest on that is the profit. A bank has to have a reserve in case anything goes wrong but the law allows them to loan more than they actually have. If everything came crashing down there would be problems.
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View this answer on Musing.io
The laws allow banks to issue loans up to a certain multiple over their reserves even if they don't have the money at hand. Banks make money from loans and the interest on that is the profit. A bank has to have a reserve in case anything goes wrong but the law allows them to loan more than they actually have. If everything came crashing down there would be problems.
Ok, so you told me what I already know, which is what is fractional-reserve banking but, the real question remains unanswered.
Why is it not illegal?