Bank Reserve

AAA

DEFINITION of 'Bank Reserve'

Bank reserves are the currency deposits which are not lent out to the bank's clients. A small fraction of the total deposits is held internally by the bank or deposited with the central bank. Minimum reserve requirements are established by central banks in order to ensure that the financial institutions will be able to provide clients with cash upon request.

INVESTOPEDIA EXPLAINS 'Bank Reserve'

The main purpose of holding reserves is to avoid bank runs and generally appear solvent. Central banks place these restrictions on banks, because the banks can earn a much larger return on their capital by lending out money to clients rather than holding cash in their vaults or depositing it with other institutions. Bank reserves decrease during periods of economic expansion and increase during recessions.

RELATED TERMS
  1. Expedited Funds Availability Act ...

    The Expedited Funds Availability Act (EFAA) was implemented to ...
  2. Working Reserves

    Reserves held by banks above the required minimum level - or ...
  3. Cash Reserves

    In finance, cash reserves primarily refers to two things. One ...
  4. Bank

    A financial institution licensed as a receiver of deposits. There ...
  5. Cash

    Legal tender or coins that can be used in exchange goods, debt, ...
  6. Bank Run

    A situation that occurs when a large number of bank or other ...
Related Articles
  1. Savings

    Online Banks: Lower Costs And Little Sacrifice

    For many, online banking has become a day-to-day routine. Still, there are some holdouts who refuse to accept the method.
  2. Professionals

    Becoming A Financial Analyst

    A career as a financial analyst requires preparation and hard work, but the payoff can be especially rewarding.
  3. Insurance

    Your First Checking Account

    This owner's manual will show you what to expect from your bank.
  4. Options & Futures

    Choose To Beat The Bank

    From internet banking to credit unions, it's in your power to cut fees and maximize service.
  5. Retirement

    Getting A Loan Without Your Parents

    Use the 5 "W"s to finance your dreams without banking on a second signature.
  6. Personal Finance

    Is Your Bank On Its Way Down?

    Find out how the Tier 1 capital ratio can be used to tell if your bank is going under.
  7. Home & Auto

    How did the ABX index behave during the 2008 subprime mortgage crisis?

    Read about the disastrous performance of the various ABX indexes in the subprime mortgage crisis of 2008 during the middle of the Great Recession.
  8. Economics

    Indian Banking Regulations -- What You Didn't Know

    Through these regulations, the Reserve Bank of India steers India's banking sector away from risk and toward its goals for India's economy and society.
  9. Economics

    How do leverage ratios help to regulate how much banks lend or invest?

    Learn what leverage ratios mean for banks, how regulators restrict leverage, and what impact ratios have on a bank's ability to lend or invest.
  10. Savings

    Can I use a prepaid credit card to pay bills or to transfer money to other accounts?

    Learn how prepaid credit cards enable convenient bill payments and transfers. Explore different fees charged for such transactions.

You May Also Like

Hot Definitions
  1. Christmas Island Dollar

    The former currency of Christmas Island, an Australian island in the Indian Ocean that was discovered on December 25, 1643. ...
  2. Santa Claus Rally

    A surge in the price of stocks that often occurs in the week between Christmas and New Year's Day. There are numerous explanations ...
  3. Commodity

    1. A basic good used in commerce that is interchangeable with other commodities of the same type. Commodities are most often ...
  4. Deferred Revenue

    Advance payments or unearned revenue, recorded on the recipient's balance sheet as a liability, until the services have been ...
  5. Multinational Corporation - MNC

    A corporation that has its facilities and other assets in at least one country other than its home country. Such companies ...
  6. SWOT Analysis

    A tool that identifies the strengths, weaknesses, opportunities and threats of an organization. Specifically, SWOT is a basic, ...
Trading Center