Reserve Requirement
Mandated percentage of deposits that banks must hold as reserves.
Detailed Description
Reserve Requirement
What is the reserve requirement?
The reserve requirement is the minimum amount of reserves banks must hold against their deposit liabilities, expressed as a percentage of total deposits.
Why are reserve requirements important?
They ensure banks maintain liquidity to meet withdrawal demands, promote banking stability, and help central banks control the money supply.
How is the reserve requirement calculated?
It is calculated by multiplying a bank's total deposits by the reserve requirement ratio set by the central bank.
What are required and excess reserves?
Required reserves are the minimum mandated by the central bank, while excess reserves are any reserves held beyond this minimum.
Who sets reserve requirements in the U.S.?
The Federal Reserve is the primary regulatory authority responsible for setting reserve requirements in the United States.