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 ?
A second reason for expecting increased volatility results from the way that reserve requirement averaging is currently structured in the United States.
The lower reserve requirement has an immediate impact on interest rates.
Release date- 05082019 - Press Release on Reserve Requirements.
BANKING AND CREDIT NEWS-August 5, 2019--Turkish central bank increases forex deposits' reserve requirements
Diokno said, however, he preferred first observing the effects of the current reserve requirement reduction program, being reduced by two percentage points from 18 percent to 16 percent over a 90-day period culminating at month's end, before ordering further cuts.
The fundamental question is: What is this reserve requirement?
The steep reserve requirement ratio of 18 percent was kept unchanged in the meeting but Guinigundo said reducing the RRR is always being considered and must be done consistent with monetary policy.
The cut will apply to those reservable liabilities of all banks and non-bank financial institutions with quasi-banking functions that are currently subject to a reserve requirement of nineteen (19) percent.
The Central Bank last cut its reserve requirement in February, when it slashed it to 19.5 percent for big banks and to 16 percent for small and medium-sized banks.
Again, after accounting for its reserve requirement, the bank receiving the deposit would have excess reserves of $8,100 (see Expansion Stage 2).
Istanbul -- Turkey's central bank raised foreign exchange reserve requirement ratios on Saturday, citing the need to support financial stability amid volatility in global markets.

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