reserve requirement

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Also found in: Acronyms.

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 ?
The central bank is to introduce a mandatory 2 percent reserve ratio for all domestic banks to boost demand for public debt.
India's central bank on Tuesday kept its key policy rates and the reserve ratios unchanged in line with the predictions, while awaiting more robust data on inflation and action from commercial banks to soften their cost of credit to alter its stance.
It is said that while a utility needs to secure around 8 percent reserve ratio for stable electricity supply, it may have to issue numerical targets for power saving if the ratio slips below 3 percent.
He also noted that the actuary projects that the MMI Fund capital reserve ratio will be positive by FY 2014 and reach 2.
So, they may see net interest margin of about 150250 basis points even after deducting the new required loan reserve ratio of 2.
The cash reserve ratio, the proportion of deposits that banks have to hold with the RBI, is a popular instrument to inject cash into the system.
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.
5 percent, and increased the required reserve ratio by 200 basis points to ensure an overall tightening of monetary policy.
25% and reduce the required reserve ratio by 2 percentage points to 6 percent as of April 1, 2010.
In the first quarter of 2009, Arkansas banks collectively had a loan-loss reserve ratio of 1.
The Reserve Bank of India also raised the cash reserve ratio of banks in an unexpectedly aggressive bid to quash double-digit inflation.
A 3 percent reserve ratio will be assessed on net transaction accounts more than $7.

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