Reserve requirements

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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'.


See also