reserve requirement

(redirected from Required Reserve Ratio)

Reserve Ratios

The liquid assets that a central bank or other body mandates that a bank keep at all times. The reserve ratio is expressed as a percentage of the bank's total deposits. The reserve ratio exists to ensure that the bank is able to pay an unusually high number of withdrawals on demand accounts should that event occur. It also helps ensure that the bank does not over-leverage itself. In some countries, increasing or decreasing reserve ratios may be used to help control the money supply. See also: Basel II, Monetary Policy.

reserve requirement

The required percentage of reserves (deposits) that banks and thrifts must hold in cash or in deposits at the Federal Reserve. This requirement is set by the Fed. Any changes in the required percentage are used to influence credit conditions. An increased percentage requirement means fewer funds available for lending and a resultant rise in interest rates. See also monetary policy.

Reserve requirement.

The Federal Reserve requires its member banks to keep a certain percentage of their customer deposits in cash and other liquid assets in reserve at all times.

The required percentage may be revised at the Fed's discretion, but it has not been changed in recent years.

When a bank finds itself with excess reserves, it can lend them to other banks that may need them. These very short-term loans are known as federal funds and the interest rate the lenders charge is called the federal funds rate. That's also the benchmark rate for many corporate and international government loans.

References in periodicals archive ?
c]'s decision to raise the Required Reserve Ratio to 14% from its current 10%, effective October 10, 2017, a move that is expected to weigh on Egyptian banks?
We note that 24 October to 23 November 2016 is the application of the decision to reduce the required reserve ratio applicable foreign exchange liabilities from 12 percent to 10 percent.
In 2012, the CBE allowed lenders to write off an amount equivalent in size to their SME credit facilities from 14% required reserve ratio (RRR) whilst also reducing RRR from 14% to 12%, freeing up liquidity to be direct to the SME sector.
Deepening liquidity problems mean that more active steps to ease the strain on the domestic banking system are likely, including a cut in the repo rate and a reduction in the required reserve ratio.
However, banks have been able to find funding abroad, and we believe that the Qatar Central Bank (QCB) has at its disposal the tools to support liquidity, with the QCB's repo rate and required reserve ratio both above four per cent.
The banks' lower required reserve ratio since February 2015 should release more liquidity into the market and increase their ability to lend to home buyers and property developers, according to the Moody's report.
Worries over a Greek debt default had sent markets lower on Friday but today the mood was buoyed by a decision by China's central bank to cut the required reserve ratio for banks by 1%.
Banks have been collecting gold as the Central Bank raised the required reserve ratio for lira liabilities that can be held in gold from 10 percent to 20 percent last year.
The bank could impose a higher required reserve ratio on banks whose leverage ratio is 3 percent or less.
As calls grew louder from analysts and investors for further measures from Beijing to support the economy, China's central bank on Thursday completed its largest weekly injection of funds into the financial system in seven months -- a move traders saw as a substitute for a cut in banks' required reserve ratio.
The lending rate offered to Taiwanese enterprises by Taiwanese banks in China is currently set at LIBOR plus 300-350 basis points, and if deducting the required reserve ratio of 1%, the net interest margin stands at 200-250 basis points.
The 600 basis points of required reserve ratio (RRR) hikes between January 2010 and June 2011 to a record level of 21.

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