Reserve requirements: Difference between revisions
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''Banking'' | ''Banking'' | ||
The minimum ratio of vault cash and balances ('[[reserves]]') with the [[central bank]] to deposits taken by the bank that the central bank requires commercial banks to hold. | The minimum ratio of vault cash and balances ('[[reserves]]') with the [[central bank]] to deposits taken by the bank that the central bank requires commercial banks to hold. | ||
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== See also == | == See also == | ||
* [[Capital adequacy]] | |||
* [[Monetary policy]] | * [[Monetary policy]] | ||
* [[Interest on excess reserves]] | * [[Interest on excess reserves]] | ||
* [[RRR]] | * [[RRR]] | ||
Revision as of 23:38, 21 November 2016
Banking
The minimum ratio of vault cash and balances ('reserves') with the central bank to deposits taken by the bank that the central bank requires commercial banks to hold.
An increase in minimum reserve requirements will be likely to lower the supply of money in the economy as banks undertake less lending, and vice versa.
The greatest possible ratio would be 100%. This is known as '100% reserve banking'.
Any smaller ratio is known as 'fractional reserve banking'.
