Primary Reserves

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.

BREAKING DOWN '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.

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RELATED FAQS
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    Understand what the Federal Reserve does in order to expand or contract the economy. Learn what depository institutions can ... Read Answer >>
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    A currency reserve is a currency that is held in large amounts by governments and other institutions as part of their foreign ... Read Answer >>
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    Learn about the Federal Reserve's monetary policy and the tools it uses to control it. Understand what happens if the Federal ... Read Answer >>
  5. Why do commercial banks borrow from the Federal Reserve?

    Learn how commercial banks borrow from the Federal Reserve to meet minimum reserve requirements, and discover the pros and ... Read Answer >>
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