Reservable Deposit


DEFINITION of 'Reservable Deposit'

A bank deposit subject to reserve requirements. Reserve requirements are set by the Federal Reserve's board of governors and are a tool of monetary policy.

The required reserves are also known as "sterile reserves," because they do not earn interest.

BREAKING DOWN 'Reservable Deposit'

The Federal Reserve Board requires banks to hold a certain percentage of customer deposits in their vaults or at the nearest Federal Reserve bank. This practice is known as fractional reserve banking, because only a fraction of customer deposits are kept on hand for immediate withdrawal. The rest of the money is loaned out so the bank can earn interest on it.

Critics consider the lack of interest earned on required reserves to be a tax on banks and think that the Federal Reserve should pay a market interest rate on deposits kept at Federal Reserve banks. They also argue that the U.S. reserve requirement of 10% is too high to allow U.S. banks to compete with banks in other developed countries that have lower requirements.

  1. Monetary Policy

    Monetary policy is the actions of a central bank, currency board ...
  2. Federal Reserve Bank

    The central bank of the United States and the most powerful financial ...
  3. Proof Of Deposit - POD

    The verification that the dollar amount of a check or draft being ...
  4. Reserve Requirements

    Requirements regarding the amount of funds that banks must hold ...
  5. Fractional Reserve Banking

    A banking system in which only a fraction of bank deposits are ...
  6. Federal Reserve Board - FRB

    The governing body of the Federal Reserve System. The seven members ...
Related Articles
  1. Credit & Loans

    The Evolution Of Banking

    Banks are a part of ancient history. Find out how this system of money management developed into what we know today.
  2. Bonds & Fixed Income

    Breaking Down The Fed Model

    Learn what pundits mean when they say that stocks are undervalued according to the Fed model.
  3. Personal Finance

    How The U.S. Government Formulates Monetary Policy

    Learn about the tools the Fed uses to influence interest rates and general economic conditions.
  4. Forex Education

    Get To Know The Major Central Banks

    The policies of these banks affect the currency market like nothing else. See what makes them tick.
  5. Personal Finance

    How The Federal Reserve Was Formed

    Find out how this institution has stabilized the U.S. economy during economic downturn.
  6. Economics

    These Will Be the World's Top Economies in 2020

    Discover the current economic forces that are anticipated to significantly shift the landscape of the world's most powerful economies over the next decade.
  7. Investing Basics

    What Does In Specie Mean?

    In specie describes the distribution of an asset in its physical form instead of cash.
  8. Economics

    Calculating Cross Elasticity of Demand

    Cross elasticity of demand measures the quantity demanded of one good in response to a change in price of another.
  9. Fundamental Analysis

    Emerging Markets: Analyzing Colombia's GDP

    With a backdrop of armed rebels and drug cartels, the journey for the Colombian economy has been anything but easy.
  10. Investing

    How to Win More by Losing Less in Today’s Markets

    The further you fall, the harder it is to climb back up. It’s a universal truth that is painfully apparent in the investing world.
  1. Who decides to print money in Canada?

    In Canada, new money comes from two places: the Bank of Canada (BOC) and chartered banks such as the Toronto Dominion Bank ... Read Full Answer >>
  2. Who decides when to print money in India?

    The Reserve Bank of India, or RBI, manages currency in India. The bank's additional responsibilities include regulating the ... Read Full Answer >>
  3. Is Japan an emerging market economy?

    Japan is not an emerging market economy. Emerging market economies are characterized by low per capita incomes, poor infrastructure ... Read Full Answer >>
  4. How is the Federal Reserve audited?

    Contrary to conventional wisdom, the Federal Reserve is extensively audited. Politicians on the left and right of a populist ... Read Full Answer >>
  5. Who decides when to print money in the US?

    The U.S. Treasury decides to print money in the United States as it owns and operates printing presses. However, the Federal ... Read Full Answer >>
  6. Why do some people claim the Federal Reserve is unconstitutional?

    The U.S. Constitution does not mention the need for a central bank, nor does it explicitly grant the government the power ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Zero-Sum Game

    A situation in which one person’s gain is equivalent to another’s loss, so that the net change in wealth or benefit is zero. ...
  2. Capitalization Rate

    The rate of return on a real estate investment property based on the income that the property is expected to generate.
  3. Gross Profit

    A company's total revenue (equivalent to total sales) minus the cost of goods sold. Gross profit is the profit a company ...
  4. Revenue

    The amount of money that a company actually receives during a specific period, including discounts and deductions for returned ...
  5. Normal Profit

    An economic condition occurring when the difference between a firm’s total revenue and total cost is equal to zero.
  6. Operating Cost

    Expenses associated with the maintenance and administration of a business on a day-to-day basis.
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!