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).


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

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