reserve requirement

(redirected from Reserve requirement 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.

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 ?
At the same time, the Central Bank also announced a reduction its reserve requirement ratio for major financial institutions to 18 per cent from 18.
5 percent / year and lower the minimum reserve requirement ratio on forex-denominated liabilities of credit institutions to 16 percent down from 18 percent to apply over July 24 Aug.
Government plans to cut reserve requirement ratio for qualifying village banks
There may be one interest rate cut and two cuts in the banks reserve requirement ratio in the second half.
The bank said Saturday it will lower the reserve requirement ratio for banks by half a percentage point from Friday, an action that would increase liquidity in the financial system to bolster the world's second-largest economy.
In a bid to keep the lid on soaring inflation, authorities in Beijing have hiked interest rates four times since October and increased the so-called reserve requirement ratio on several occasions, effectively limiting the amount of money banks can loan out.
The amendments decrease the amount of transaction accounts subject to a reserve requirement ratio of three percent in 2000, as required by section 19(b)(2)(C) of the Federal Reserve Act, from $46.
The economist added that the strength of the economy is such that it no longer requires accommodative monetary policy, especially in light of looming cuts to the reserve requirement ratio.
said it's getting harder to cut the reserve requirement ratio for lenders as he'd pledged to do when he took office six months ago, with inflation set to pick up.
MANILA, Philippines The Bangko Sentral ng Pilipinas (BSP) has assigned a zero-percent reserve requirement ratio on repurchase (repo) transactions as a sweetener to encourage more players to participate in the government securities repo program.
TOKYO, Oct 26 (KUNA) -- China's central bank said Monday its recent move to cut interest rates and lower the reserve requirement ratio was very different from quantitative easing, official Xinhua News Agency reported.
Under the banner of policy "fine-tuning", China's central bank cut interest rates twice in June and July and lowered banks' reserve requirement ratio (RRR) three times since late 2011, freeing an estimated 1.