The Infinite View is your weekly guide to rethinking wealth and taking control of your finances. Each edition breaks down key economic data in simple terms — then flips the script to offer a powerful alternative perspective on how to grow and use your money. It’s about clarity, control, and confidence in a system that works for you.

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This week’s data sends a mixed but important message:

Inflation eased to 2.2%, suggesting gradual cooling, but core costs remain sticky. The Canadian dollar strengthened, reversing weeks of decline as political uncertainty eased and trade sentiment improved. Housing starts dropped 17%, signaling stress in construction and real estate sectors. The labour market remains steady after October’s surprise jump, but confidence indicators suggest Canadians aren’t convinced. Markets remain optimistic, but business activity indices show deep contraction in services and manufacturing.

How Fractional Reserve Lending Works in Canada

Fractional reserve lending is a banking system where banks keep only a portion of customer deposits on hand as reserves and lend out the remainder. Canada notably does not impose mandatory reserve requirements, instead relying on capital requirements and central bank oversight to maintain stability.​​

The Basic Mechanics

When you deposit money at a Canadian bank, the institution doesn't keep all of it in the vault. Under traditional fractional reserve systems, if a bank receives a $1,000 deposit and has a 10% reserve requirement, it would hold $100 as reserves and could lend out $900. The key is that your account still shows the full $1,000 as available, while simultaneously someone else has borrowed and deposited $900 elsewhere, effectively creating new money in the banking system.​

This, however, is not how banking works. The bank sees a $1,000 deposit as the 10% reserve, and now it can loan out $9,000. This “extra” $9,000 is created out of nothing and quite literally inflates the money supply.

Canada's Unique Approach

Unlike countries such as the United States that historically imposed specific reserve ratios, Canada eliminated formal reserve requirements and instead uses capital requirements to constrain lending. When Canadian banks face reserve shortfalls, the Bank of Canada acts as the lender of last resort to provide needed liquidity. Capital however always comes at a cost, and the rate of this money is called the overnight lending rate. This is the rate that is set by the Bank of Canada. This system relies on the statistical reality that not all depositors will withdraw funds simultaneously, allowing banks to maintain adequate liquidity without strict reserve mandates.​

This is why banks will often close when a “run” happens. If confidence in the dollar or banking falls, people want to extract their money from the banks to hold a physical asset. This can’t be allowed because the banks literally don’t have enough money in reserve to fulfill all of their obligations to the depositors. A deposit in a bank account is an asset for you, but a liability for the bank.

Money Creation Through Lending

The fractional system enables money multiplication throughout the economy. When banks give loans, they create deposits in borrowers' accounts without physically moving existing cash, expanding the total money supply beyond the original base currency issued by the central bank. This "borrowing short, lending long" function allows banks to act as financial intermediaries, providing immediate liquidity to depositors while simultaneously funding longer-term loans to borrowers.