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.

RELATED TERMS
  1. Reserve Requirements

    Requirements regarding the amount of funds that banks must hold ...
  2. Bank Reserve

    Bank reserves are the currency deposits which are not lent out ...
  3. Reserve Ratio

    The portion (expressed as a percent) of depositors' balances ...
  4. Working Reserves

    Reserves held by banks above the required minimum level - or ...
  5. Fractional Reserve Banking

    A banking system in which only a fraction of bank deposits are ...
  6. Free Reserves

    A measurement of a bank's reserves that is equal to the difference ...
Related Articles
  1. Markets

    Explaining the Reserve Ratio

    Reserve ratio is the amount of cash a bank must keep in its bank vaults or deposit into a central, governing bank.
  2. Markets

    What is Fractional Reserve Banking?

    Fractional reserve banking is the banking system most countries use today.
  3. Markets

    How The U.S. Government Formulates Monetary Policy

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

    What's the Federal Funds Rate?

    The federal funds rate is the interest rate banks charge each other for overnight loans to meet their reserve requirements.
  5. Markets

    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?
  6. Markets

    Why Banks Don't Need Your Money to Make Loans

    Contrary to the story told in most economics textbooks, banks don't need your money to make loans, but they do want it to make those loans more profitable.
  7. Markets

    What Do the Federal Reserve Banks Do?

    These 12 regional banks are involved with four general tasks: formulate monetary policy, supervise financial institutions, facilitate government policy and provide payment services.
  8. Markets

    The Federal Reserve: What Is The Fed?

    The Federal Reserve was created by the U.S. Congress in 1913. Before that, the U.S. lacked any formal organization for studying and implementing monetary policy. Consequently markets were often ...
  9. Markets

    A Primer On Reserve Currencies

    For nearly a century, the U.S. dollar has served as the world's premier reserve currency, but the future is uncertain.
  10. Markets

    How The Federal Reserve Manages Money Supply

    Find out how the Fed manages bank reserves and this contributes to a stable economy.
RELATED FAQS
  1. How are bank reserve requirements determined and how does this affect shareholders?

    Learn how bank reserve requirements are determined and how bank reserves affect shareholders through improved bank stability ... Read Answer >>
  2. 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 >>
  3. Who determines the reserve ratio?

    Understand what the Federal Reserve is and what it regulates in the U.S. economy. Learn about the reserve ratio and how the ... Read Answer >>
  4. How do central banks acquire currency reserves and how much are they required to ...

    A currency reserve is a currency that is held in large amounts by governments and other institutions as part of their foreign ... Read Answer >>
  5. Why would the Federal Reserve change the reserve ratio?

    Understand the Federal Reserve's monetary policy and the tools it uses to change that monetary policy. Learn about the reserve ... Read Answer >>
  6. What happens if the Federal Reserve lowers the reserve ratio?

    Learn about the Federal Reserve's monetary policy and the tools it uses to control it. Understand what happens if the Federal ... Read Answer >>
Hot Definitions
  1. Duration

    A measure of the sensitivity of the price (the value of principal) of a fixed-income investment to a change in interest rates. ...
  2. Dove

    An economic policy advisor who promotes monetary policies that involve the maintenance of low interest rates, believing that ...
  3. Cyclical Stock

    An equity security whose price is affected by ups and downs in the overall economy. Cyclical stocks typically relate to companies ...
  4. Front Running

    The unethical practice of a broker trading an equity based on information from the analyst department before his or her clients ...
  5. After-Hours Trading - AHT

    Trading after regular trading hours on the major exchanges. The increasing popularity of electronic communication networks ...
  6. Omnibus Account

    An account between two futures merchants (brokers). It involves the transaction of individual accounts which are combined ...
Trading Center