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Reserve Ratio
What Does Reserve Ratio Mean?
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).
Investopedia explains 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.
Related Links
- 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?
- What Are Central Banks? - They print money, they control inflation, and much, much more. All you need to know about central banks is here.
- Compare Local Interest Rates - Search and compare the best checking and savings rates nationwide from Bankrate.com. Click Here!
- Formulating Monetary Policy - Learn about the tools the Fed uses to influence interest rates and general economic conditions.
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