Reserve Ratio

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DEFINITION of 'Reserve Ratio'

The portion (expressed as a percent) of depositors' balances banks must have on hand as cash. This is a requirement determined by the country's central bank, which in the U.S. is the Federal Reserve. The reserve ratio affects the money supply in a country.

This is also referred to as the "cash reserve ratio" (CRR).

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BREAKING DOWN 'Reserve Ratio'

For example, if the reserve ratio in the U.S. is determined by the Fed to be 11%, this means all banks must have 11% of their depositers' money on reserve in the bank. So, if a bank has deposits of $1 billion, it is required to have $110 million on reserve.

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RELATED FAQS
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    The maximum amount of checkable deposits a bank creates through loaning money cannot exceed the amount of the bank's reserves ... Read Full Answer >>
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