Bank Reserve

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.

BREAKING DOWN '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. Currency

    Currency is a generally accepted form of money, including coins ...
  2. Cash

    Legal tender or coins that can be used to exchange goods, debt ...
  3. Monetary Policy

    Monetary policy is the actions of a central bank, currency board ...
  4. Expedited Funds Availability Act ...

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

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

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

    Retirees: 7 Lessons from 2008 for the Next Crisis

    When the last big market crisis hit, many retirees ran to the sidelines. Next time, there are better ways to manage your portfolio.
  8. Economics

    Industries That Thrive On Recession

    Recessions are not equally hard on everyone. In fact, there are some industries that even flourish amid the adversity.
  9. Fundamental Analysis

    Is a U.S. Industrial Recession on the Horizon in 2016?

    Find out why the industrial economy may be teetering on an industrial recession and what could prevent it from going over the cliff.
  10. Fundamental Analysis

    Gloom and Doom for Global Markets in 2016?

    Learn about the volatility in global markets during the beginning of 2016. See why famous investors are saying some economies could see recessions.
RELATED FAQS
  1. What do banks do to control the bank reserve?

    While all banks are required to maintain a specific amount of bank reserves, the banks themselves do not control the minimum ... Read Full Answer >>
  2. 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 >>
  3. Will Netspend cards let you overdraw your account?

    NetSpend lets cardholders overdraw their accounts, but only if they previously enrolled in the overdraft protection service. ... Read Full Answer >>
  4. Which mutual funds made money in 2008?

    Out of the 2,800 mutual funds that Morningstar, Inc., the leading provider of independent investment research in North America, ... Read Full Answer >>
  5. Does the FDIC cover business accounts?

    Bank deposits owned by corporations, partnerships, limited liability companies (LLCs), and unincorporated associations, including ... Read Full Answer >>
  6. How can I avoid escheatment of my bank account?

    To avoid escheatment of a bank deposit account, either checking or savings, the owner should log on to his online account; ... Read Full Answer >>
Hot Definitions
  1. Super Bowl Indicator

    An indicator based on the belief that a Super Bowl win for a team from the old AFL (AFC division) foretells a decline in ...
  2. Flight To Quality

    The action of investors moving their capital away from riskier investments to the safest possible investment vehicles. This ...
  3. Discouraged Worker

    A person who is eligible for employment and is able to work, but is currently unemployed and has not attempted to find employment ...
  4. Ponzimonium

    After Bernard Madoff's $65 billion Ponzi scheme was revealed, many new (smaller-scale) Ponzi schemers became exposed. Ponzimonium ...
  5. Quarterly Earnings Report

    A quarterly filing made by public companies to report their performance. Included in earnings reports are items such as net ...
Trading Center