reserve requirement

(redirected from Required Reserve Ratios)

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 ?
In a document published on the central government's website late on Sunday, Beijing said it will step up a policy of targeted cuts to banks' required reserve ratios to encourage financing for small and medium-sized businesses.
I suspect that long-time watchers of China's reform efforts may not be that enthusiastic about its central bank's decision to cut the required reserve ratios for banks.
Moscow: Due to changes in the laws of the Russian Federation providing for the possibility to set different mandatory reserve requirements (required reserve ratios, required reserve averaging ratio) for different types of credit institutions (banks holding a general licence, banks holding a basic licence, non-bank credit institutions), the Bank of Russia Board of Directors decided to set the following mandatory reserve requirements for banks holding a basic licence effective from 1 December 2017.
Higher required reserve ratios can limit the acceleration in credit supply, and contain macro financial risks.
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.