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# Requisite Variety in Banking

## Definition

The principle that banks must maintain sufficient reserves and prudent lending practices to match the variety of demands placed upon them. This ensures stability and prevents the excessive circulation of paper money.

## Source Chapter

Book II, Chapter 2

## Context

Smith applies the concept of requisite variety to banking operations, arguing that banks must maintain appropriate reserves and lending practices to remain stable. He shows how failure to maintain requisite variety leads to banking crises.

## Economic Domain

Regulation

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