Bank Reserve

What is the 'Bank Reserve'

The 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. Investing News

    Kyle Bass: Hayman Capital Bearish on China

    Find out why Hayman Capital founder Kyle Bass is so bearish on China and how he expects to take advantage of its hard landing in the next two years.
  2. 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.
  3. Career Education & Resources

    How to Become a Financial Analyst

    A career as a financial analyst requires preparation and hard work, but the payoff can be especially rewarding. Here's what it takes.
  4. Insurance

    Your First Checking Account

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

    Choose To Beat The Bank

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

    Getting A Loan Without Your Parents

    Use the 5 "W"s to finance your dreams without banking on a second signature.
  7. 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.
  8. Active Trading Fundamentals

    The Short and Distort: Stock Manipulation in a Bear Market

    High-quality stock reports needn't be confused with stock manipulators' dramatic claims.
  9. Investing News

    SocGen Economist: Recession is Inevitable

    Albert Edwards, global strategist at Société Générale, believes a recession is inevitable. His prophecy relates to historical earnings trends.
  10. Products and Investments

    Where Does the Economy Go from Here?

    Is the economy headed in the right direction or toward doom and gloom?
RELATED FAQS
  1. What do banks do to control the bank reserve?

    Understand what the Federal Reserve does in order to expand or contract the economy. Learn what depository institutions can ... Read Answer >>
  2. How does quantitative easing in the U.S. affect global markets?

    See how the Federal Reserve's quantitative easing can manipulate markets in the U.S. and globally in ways that are difficult ... Read Answer >>
  3. Will Netspend cards let you overdraw your account?

    Discover if NetSpend debit cards allow you to overdraw your account. Learn how to enroll in NetSpend's overdraft protection ... Read Answer >>
  4. Which mutual funds made money in 2008?

    Read about the only mutual fund that turned a profit in 2008. Learn about risk-averse investment strategies and the financial ... Read Answer >>
  5. Does the FDIC cover business accounts?

    Learn what types of business accounts are insured by the FDIC, and find out how much of the deposits made by a business are ... Read Answer >>
  6. How can I avoid escheatment of my bank account?

    Learn how to avoid escheatment of a dormant bank deposit by logging on to your online account, calling your bank or making ... Read Answer >>
Hot Definitions
  1. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
  2. Society for Worldwide Interbank Financial Telecommunications ...

    A member-owned cooperative that provides safe and secure financial transactions for its members. Established in 1973, the ...
  3. Generally Accepted Accounting Principles - GAAP

    The common set of accounting principles, standards and procedures that companies use to compile their financial statements. ...
  4. DuPont Analysis

    A method of performance measurement that was started by the DuPont Corporation in the 1920s. With this method, assets are ...
  5. Call Option

    An agreement that gives an investor the right (but not the obligation) to buy a stock, bond, commodity, or other instrument ...
  6. Economies Of Scale

    Economies of scale is the cost advantage that arises with increased output of a product. Economies of scale arise because ...
Trading Center