Primary Reserves

AAA

DEFINITION of 'Primary Reserves'

The minimum amount of cash required to operate a bank. Primary reserves also include the legal reserves that are housed in a Federal Reserve or other correspondent bank. Checks that have not been collected are included in this amount as well.

INVESTOPEDIA EXPLAINS 'Primary Reserves'

Primary reserves are kept in order to cover unexpected major withdrawals or runs of withdrawals. They serve as a defense against a substantial reduction in liquidity. These reserves must be kept more liquid than secondary reserves, which may be invested in marketable securities such as Treasury offerings.

RELATED TERMS
  1. Secondary Reserves

    Assets that are invested in safe, marketable, short-term securities ...
  2. Lagged Reserves

    A method of bank reserve calculation whereby the financial institution ...
  3. Proved Reserves

    A classification used in mining sectors that refers to the amount ...
  4. Free Reserves

    A measurement of a bank's reserves that is equal to the difference ...
  5. Correspondent

    The name given to a bank, broker, dealer, or financial institution ...
  6. Excess Reserves

    Capital reserves held by a bank or financial institution in excess ...
RELATED FAQS
  1. What are the differences between the Federal Funds Rate and LIBOR?

    In macroeconomics, the interest rate plays a crucial role in delivering an equilibrium on the assets market by equating the ... Read Full Answer >>
  2. What is the correlation between inflation and interest rate risk?

    There is a positive correlation between inflation and interest rate risk. Inflation basically occurs when there is too much ... Read Full Answer >>
  3. Which nations' economies have reserve ratios?

    Most developed economies require a reserve ratio for their banks and other depository institutions, though there are some ... Read Full Answer >>
  4. What is the primary use of reverse repurchase agreements?

    The Federal Reserve utilizes a reverse repurchase agreement as one of two instruments used for the primary purpose of offsetting ... Read Full Answer >>
  5. Why would the Federal Reserve change the reserve ratio?

    The Federal Reserve would change the reserve ratio if it wanted to use that part of its monetary policy to either expand ... Read Full Answer >>
  6. What happens if the Federal Reserve lowers the reserve ratio?

    If the Federal Reserve decides to lower the reserve ratio through an expansionary monetary policy, commercial banks are required ... Read Full Answer >>
Related Articles
  1. Markets

    Burn Rate Key Factor In Company's Sustainability

    Be careful around companies with high cash burn rates. These investments can turn to ashes.
  2. Fundamental Analysis

    Spotting Profitability With ROCE

    This straightforward ratio measures whether a company is efficient, money-making or neither.
  3. Personal Finance

    Are Markets Ready For An Interest Rate Hike?

    Despite financial market fears over the uncertainty of Greece’s debt crisis and the recent drop in China’s stock-market, Federal Reserve Chairwoman Janet Yellen has reaffirmed the Fed’s plans ...
  4. Home & Auto

    How the Fed Affects Reverse Mortgages

    An in depth look at how the Federal Reserve affects reverse mortgages.
  5. Economics

    Signs The U.S. Recovery Is Solid

    Many market observers lately have been making some pretty pessimistic evaluations of the U.S. economy, declaring that it’s stagnating and soft.
  6. Economics

    Regional Banks Give The Fed A National Perspective

    We all know that the Federal Reserve utilizes monetary policy to control the economy, but what do the 12 regional Federal Reserve Banks do?
  7. Fundamental Analysis

    Spectator Vs. Speculator: Two Market Approaches

    Spectators and speculators rely on different mechanisms to identify and profit from market opportunities.
  8. Markets

    Rising Interest Rates: Who it Helps, Who it Hurts

    When interest rates rise, the impact hits some of us differently. Here's why.
  9. Stock Analysis

    3 Stocks To Buy and Hold For the Rest of 2015

    One of the dominant themes to consider for 2015 is the normalization of monetary policy as the Fed raises interest rates.
  10. Economics

    Greece Isn’t The Only Problem U.S. Stocks Face

    Both stocks and bonds fell last week, due to several factors dampening investor sentiment. The most obvious one is the evolving situation in Greece.

You May Also Like

Hot Definitions
  1. Investopedia

    One of the best-known sources of financial information on the internet. Investopedia is a resource for investors, consumers ...
  2. Unfair Claims Practice

    The improper avoidance of a claim by an insurer or an attempt to reduce the size of the claim. By engaging in unfair claims ...
  3. Killer Bees

    An individual or firm that helps a company fend off a takeover attempt. A killer bee uses defensive strategies to keep an ...
  4. Sin Tax

    A state-sponsored tax that is added to products or services that are seen as vices, such as alcohol, tobacco and gambling. ...
  5. Grandfathered Activities

    Nonbank activities, some of which would normally not be permissible for bank holding companies and foreign banks in the United ...
  6. Touchline

    The highest price that a buyer of a particular security is willing to pay and the lowest price at which a seller is willing ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!