reserve requirement

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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 ?
She asserted that despite the current cautious reactions of both the Central Bank and the Banking Regulation Board, including the ones over required reserve ratios, the reserve option mechanism, proves to be working fine but the challenges have not been overcome and the cautious policies should be kept.
The bank will basically impose higher required reserve ratios on banks whose leverage ratio -- a measure of their capital against total assets -- is 3 percent or below.
They did so by using the tools that are now commonplace, such as altering required reserve ratios and discount rates and engaging in open-market operations.
This follows the May 12th announcement that China would cut its required reserve ratios by 50 bps to inject liquidity into the financial system.
The outcome dampened expectations of an imminent move by the central bank to cut banks' required reserve ratios (RRR), the level of cash they must hold in reserve.
The Chinese central bank may announce a 50 basis-point cut in banks' required reserve ratios at the end of this month, Economic Information 'Daily' reported yesterday.
Turkey's banks have been facing intense pressure as the central bank has raised banks' required reserve ratios five times since last November to limit credit growth to 25 percent this year, after loans increased by 34 percent last year, Dow Jones noted in a related report.
Moreover, the bank has reduced the required reserve ratios for foreign-exchange deposits by 0.
European equities pared earlier gains after China's central bank raised lenders' required reserve ratios in a move which also briefly reversed a rally in Brent crude prices.
The central bank cut interest rates to make yields less attractive to hot money inflows and raised required reserve ratios to drain excess liquidity and curb credit growth.
At the same time, it raised required reserve ratios to balance inflationary effects and cool rampant credit growth, by forcing lenders to deposit more money with the central bank rather then dishing it out in cheap loans to consumers.
Including an earlier temporary increase, the move takes required reserve ratios (RRR) to 18.

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