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. Cash

    Legal tender or coins that can be used in exchange goods, debt, ...
  5. Central Bank

    The entity responsible for overseeing the monetary system for ...
  6. Bank Run

    A situation that occurs when a large number of bank or other ...
RELATED FAQS
  1. How does quantitative easing in the U.S. affect global markets?

    The long-term consequences of quantitative easing, or QE, have yet to be seen, and any short-term impacts are difficult to ... Read Full Answer >>
  2. When is a bond's coupon rate and yield to maturity the same?

    The collapse of Enron – and its subsequent fallout – is perhaps the most infamous event in modern American corporate history. ... Read Full Answer >>
  3. How did the Great Recession affect structural unemployment?

    The Great Recession greatly increased structural unemployment levels by creating a large disparity between the high supply ... Read Full Answer >>
  4. How can central banks use open market operations to manipulate short-term interest ...

    A central bank uses open market operations to manipulate short-term interest rates by increasing or decreasing the money ... Read Full Answer >>
  5. What are the benefits of investing in a cyclical stock?

    Cyclical stocks tend to be highly correlated with the overall business cycle, so an investor can invest in a cyclical stock ... Read Full Answer >>
  6. How does an economic downturn affect a cyclical stock?

    An economic downturn negatively affects a cyclical stock. Its stock price declines as earnings and revenues tumble. Cyclical ... Read Full Answer >>
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. Economics

    Why Working Doesn't Add Up For Many Women

    A type of tax deduction for Japanese stay-at-home wives puts a barrier on women working full time in the country.
  8. Economics

    Understanding Term Loans

    A loan from a bank for a specific amount that has a specified repayment schedule and a floating interest rate.
  9. Economics

    Explaining Tier 1 Capital

    Tier 1 capital refers to the core capital a bank must maintain in relation to its assets.
  10. Credit & Loans

    What's a Revolving Line of Credit?

    A revolving line of credit is an arrangement made between a company or an individual and a bank to borrow money on a short-term basis.

You May Also Like

Hot Definitions
  1. Moving Average - MA

    A widely used indicator in technical analysis that helps smooth out price action by filtering out the “noise” from random ...
  2. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  3. Productivity

    An economic measure of output per unit of input. Inputs include labor and capital, while output is typically measured in ...
  4. Variance

    The spread between numbers in a data set, measuring Variance is calculated by taking the differences between each number ...
  5. Terminal Value - TV

    The value of a bond at maturity, or of an asset at a specified, future valuation date, taking into account factors such as ...
  6. Rule Of 70

    A way to estimate the number of years it takes for a certain variable to double. The rule of 70 states that in order to estimate ...
Trading Center