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.
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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.
Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.

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.

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References in periodicals archive ?
The additional trimming of Bangko Sentral ng Pilipinas' policy rate by 50 bps and the required reserve ratio (RRR) by 200 bps in second half of the year will 'add fuel to growth --in the real economy and financial markets', they said.
'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, I think the room for adjustment is tremendous,' said Yi in an exclusive interview in Beijing.
Bangko Sentral ng Pilipinas (BSP) Governor Benjamin Diokno pledged to cut interest rates further and lower the required reserve ratio (RRR) for lenders to support the economy as inflation pressures ease.
'Besides, the room for lowering the required reserve ratio is limited, and the central bank should be more cautious before taking another cut.'
It cut required reserve ratio (RRR) by 100 basis points in 2019, largely an extension of 2018's stance when it lowered the ratio by 3.5 percentage points in a one-year span through five separate cuts.
The Bank of Mongolia set the required reserve ratio to 10.5% for domestic-currency liabilities and 12.0% for foreign-currency liabilities at end-March 2018, with the difference aimed at discouraging dollarisation.
The move will see the required reserve ratio for some banks drop by 0.5 of a percentage point, effective July 5.
On the other hand, some banking stocks traced a downward trajectory following the Central Bank of Egypt???[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???[c]' net interest margins and put downward pressure on their return on equity.
The Required Reserve Ratio. This is the fraction of its liabilities that a commercial bank is required to hold as reserves with the Bank of England.
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.

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