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. Online Banks: Lower Costs And Little ...
    Savings

    Online Banks: Lower Costs And Little ...

  2. Becoming A Financial Analyst
    Professionals

    Becoming A Financial Analyst

  3. Your First Checking Account
    Insurance

    Your First Checking Account

  4. Choose To Beat The Bank
    Options & Futures

    Choose To Beat The Bank

comments powered by Disqus
Hot Definitions
  1. Walras' Law

    An economics law that suggests that the existence of excess supply in one market must be matched by excess demand in another ...
  2. Market Segmentation

    A marketing term referring to the aggregating of prospective buyers into groups (segments) that have common needs and will ...
  3. Effective Annual Interest Rate

    An investment's annual rate of interest when compounding occurs more often than once a year. Calculated as the following: ...
  4. Debit Spread

    Two options with different market prices that an investor trades on the same underlying security. The higher priced option ...
  5. Odious Debt

    Money borrowed by one country from another country and then misappropriated by national rulers. A nation's debt becomes odious ...
  6. Takeover

    A corporate action where an acquiring company makes a bid for an acquiree. If the target company is publicly traded, the ...
Trading Center