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 bank said in a statement Sunday that the new reserve requirement would take effect Monday.
Turkey's central bank has announced that it has increased its foreign exchange reserve requirement ratios.
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.
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.
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 annual indexing of the low reserve tranche and the reserve requirement exemption amount is based on growth in net transaction accounts and total reservable liabilities, respectively, at all depository institutions between June 30, 2004, and June 30, 2005.
Instead of interest rate hikes, the central bank of China will rely more heavily on administrative measures, such as window guidance over bank lending, higher reserve requirements, and moral suasion over local government infrastructure spending.
First, it challenges the notion that reserve requirement ratio changes are simply one of three tools, along with the discount rate and open market operations, at the disposal of the Federal Reserve System for implementing monetary policy.
Reserve requirement reductions and deposit sweeping have allowed banks to lower such incremental costs.
Commercial banks here have welcomed a move by the Central Bank to reduce the reserve requirement resulting in the lowering of interest<BR> rates on loans, reports CANA (May 16, 2001).

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