Reserve ratios

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Reserve ratios

Specified percentages of deposits, established by the Federal Reserve Board, that banks must keep in a noninterest-bearing account at one of the twelve Federal Reserve Banks.
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.

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.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved
References in periodicals archive ?
If required reserve and required clearing balances dropped to very low levels, there would be increased risks of overnight overdrafts on the accounts of depositories in Reserve Banks.
The adjustment recognizes that some depository institutions will not respond fully, in terms of changing the quantity of base money demanded, to reductions in required reserve ratios as is assumed in the calculation of the current RAM.
The move will see the required reserve ratio for some banks drop by 0.5 of a percentage point, effective July 5.
Basci also said the bank could raise daily foreign exchange selling amount gradually and make additional reduction in foreign currency required reserve ratio in case TL lost extreme value due to global concerns in coming days.
Because required reserve balances do not currently earn interest, banks and other depository institutions employ costly procedures to reduce such balances to a minimum.
On Monday, the bank reduced the required reserve ratio for banks with loan growth rates above 10 percent and also raised the return on those reserves.
"We have plenty of room in interest rates, we have plenty of room in required reserve ratio rate, and also for the fiscal, monetary policy toolkit," People's Bank of China Governor Yi Gang said in an interview with Bloomberg in Beijing.
Depending on the type of risk, liquidity risk in the banking sector or the risk of uncontrolled cross-border outflow of foreign exchange liquid assets, the CBBH will use the required reserve instrument in all its segments, if necessary', Governor SoftiA said, adding that if sooner or later, the growth of interest rates occurs, we expect it to be gradual, and should not represent a significant brake on economic development.
LEG said last June that a new unit in Kruonis could hardly generate electricity, but it would help ensure the required reserve capacity in the Baltic countries.
Yellow alert means the power supply has dropped to a level below the required reserve of 647 megawatts (MW).
The Monetary Control Act of 1980 gave the Fed the authority to set the level of required reserves. Although the initial reserve amount was set at 12% and has subsequently been reduced to 10%, the law also set a maximum for the required reserve amount at 14%.
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.

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