Reserve Ratio


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).


Loading the player...

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.

  1. Monetary Policy

    Monetary policy is the actions of a central bank, currency board ...
  2. Non-Member Banks

    A bank that is not a member of the U.S. Federal Reserve System. ...
  3. Book Balance

    Funds on deposit prior to any adjustment for check clearing, ...
  4. Central Bank

    The entity responsible for overseeing the monetary system for ...
  5. Federal Reserve Board - FRB

    The governing body of the Federal Reserve System. The seven members ...
  6. Federal Reserve System - FRS

    The central bank of the United States. The Fed, as it is commonly ...
Related Articles
  1. Economics

    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. 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.
  3. Personal Finance

    What Are Central Banks?

    They print money, they control inflation, and much, much more. All you need to know about central banks is here.
  4. Economics

    What Is Money?

    It's a part of everyone's life, and we all want it, but do you know how it gains value and how it is created?
  5. Economics

    What's the 1913 Federal Reserve Act?

    The 1913 Federal Reserve Act was a pivotal congressional act that helped establish the Federal Reserve System as it exists today. It is one of the United States financial system’s most influential ...
  6. Investing News

    Could a Rate Hike Send Stocks Higher?

    A rate hike would certainly alter the investment scene, but would it be for the better or worse?
  7. Economics

    Open Market Operations vs. Quantitative Easing

    How does the Fed's implementation of Quantitative Easing differ from its more conventional open market operations?
  8. Professionals

    Will Interest Rates Rise at the Next Fed Meeting?

    Everyone wants to know what the Federal Reserve will do next, but the Fed doesn't even know what it's next move will be.
  9. Economics

    What Does a Central Bank Do?

    A central bank oversees a nation’s monetary system.
  10. Stock Analysis

    Why Is GE Selling Some of Its Subsidiaries?

    Learn why GE is selling off a substantial amount so it does not have to comply with increased government regulation in the wake of the 2008 financial crisis.
  1. 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 >>
  2. How must banks use the deposit multiplier when calculating their reserves?

    The maximum amount of checkable deposits a bank creates through loaning money cannot exceed the amount of the bank's reserves ... Read Full Answer >>
  3. What strategies can be used to achieve the goals of contractionary policy?

    In the United States, the Federal Reserve is charged with controlling monetary policy, and Congress (along with the executive ... Read Full Answer >>
  4. How is money supply used in monetary policy?

    Regulating the money supply is the sole tool of the Federal Reserve's monetary policy. The Federal Reserve can affect the ... Read Full Answer >>
  5. How do commercial banks us the 'money multiplier' to create money?

    In a fractional reserve banking system, commercial banks are permitted to create money by allowing multiple claims to assets ... Read Full Answer >>
  6. What is the relationship between interest rates and inflation?

    Under a system of fractional-reserve banking, interest rates and inflation tend to be inversely correlated. This relationship ... 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!