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 ?
The bank lowered the primary reserve requirement ratio for banks to 7.
It also lowered by 50 basis points the reserve requirement ratio (RRR) for banks as a whole, and lowered the ratio by an additional 50 basis points for qualified financial institutions that support the agriculture sector and small- and mid-size enterprises.
The Peopleآ's Bank of China slashed both benchmark interest rates and the reserve requirement ratio for banks.
In addition, the cash reserves banks are required to hold in order to ensure liquidity -- known as the reserve requirement ratio (RRR) -- were lowered.
In the context of an economic system dominated by the banks, the use and impact of the main monetary policy instruments is discussed, namely, the short term interest rate set by the central bank or reference interest rate, the reserve requirement ratio in local and foreign currencies, and, finally, sterilized intervention in the foreign exchange market.
In a bid to stimulate activity, China has cut interest rates four times since November and has also lowered the reserve requirement ratio -- the amount of money banks must put aside.
After two cuts of the reserve requirement ratio (RRR) -- a policy tool that determines banks' holdings of reserves -- and two lending and deposit rate cuts, the People's Bank of China (PBoC) decided to lower lending rates once again.
Lower interest rates The central bank has lowered interest rates and banks' reserve requirement ratio (RRR) thrice in three months since November to stoke the economy, and most analysts had expected it to loosen policy again on both fronts in coming months.
The reduction in the reserve requirement ratio (RRR) -- the amount of cash banks must keep on hand-follows a similar move in early February, which was the first across-the-board cut since May 2012.
So the PBoC needs to react and we saw its first indirect intervention a few weeks ago when it cut the Reserve Requirement Ratio by 50bps to 19.
After the news (by local media), market players lowered their expectation of a reserve requirement ratio cut, which is widely seen to be not effective to help the real economy," said Northeast Securities analyst Du Changchun.
We expect a reserve requirement ratio cut in December, introduction of reverse repos this week, and another rate cut in the first quarter.