reserve requirement

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Related to reserve requirement: Open market operations

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 chief reiterated that reducing banks' reserve requirement was not a means to manage the liquidity in the financial system, which could raise or lower the pace at which consumer prices rise.
In deciding to reduce the reserve requirement ratios, the Monetary Board reaffirms the BSP's commitment to gradually lessen its reliance on reserve requirements for managing liquidity in the financial system," it said in a statement.
Espenilla also signaled more reductions on the deposit reserve as he vowed to 'gradually lessen its reliance on reserve requirements for managing liquidity in the financial system.
issued Circular 983 announcing the reduction of reserve requirement on repo transactions in support of the comprehensive initiative to develop the domestic local currency debt market.
The cash reserve requirement for commercial banks remains unchanged at 5%.
The bank said in a statement Sunday that the new reserve requirement would take effect Monday.
Again, after accounting for its reserve requirement, the bank receiving the deposit would have excess reserves of $8,100 (see Expansion Stage 2).
With a view to supporting financial stability and by taking into account the latest developments in global markets, the reserve requirement ratios of foreign exchange-denominated liabilities of banks and financing companies are revised in order to encourage the extension of maturities of non-core liabilities," the central bank said in a statement.
The central bank had raised the lira reserve requirement half a percent in September and said last month it may raise it to 6% by year-end.
The lowering of the reserve requirement will also allow banks to get a return on the funds that have been released.
It also raised for the first time in years the reserve requirements banks have to make for time and savings deposits to 4pc from 2pc, according to the memo.
The Federal Reserve Board announced on October 4, 2005, the annual indexing of the low reserve tranche and of the reserve requirement exemption amount for 2006.

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