Reserve requirement
Encyclopedia
The reserve requirement is a central bank
regulation that sets the minimum reserves
each commercial bank
must hold (rather than lend out) of customer deposits
and notes
. It is normally in the form of cash
stored physically in a bank vault
(vault cash) or deposits made with a central bank
.
The reserve ratio is sometimes used as a tool in the monetary policy
, influencing the country's borrowing and interest rate
s by changing the amount of loans available. Western central banks rarely alter the reserve requirements because it would cause immediate liquidity problems for banks with low excess reserves
; they generally prefer to use open market operation
s (buying and selling government-issued bonds
) to implement their monetary policy. The People's Bank of China
uses changes in reserve requirements as an inflation-fighting tool, and raised the reserve requirement ten times in 2007 and eleven times since the beginning of 2010. As of 2006 the required reserve ratio in the United States was 10% on transaction deposit
s and zero on time deposit
s and all other deposits.
An institution that holds reserves in excess of the required amount is said to hold excess reserves
.
Money Supply
Monetary base
money multiplier
rate at which people hold cash (as opposed to depositing it), equal to one minus marginal propensity to consume
the reserve requirement (the percent of deposits that banks are not allowed to lend)
However, in the United States (and other countries except Brazil, China, India, Russia), the reserve requirements are generally not frequently altered to affect monetary policy because of the exponential effect and the large time lag between the implementation of the change and the corresponding effects on inflation.
, of the ratio of required reserves to some category of deposits held at depository institutions (e.g., commercial bank
including US branch of a foreign bank, savings and loan association
, savings bank
, credit union
). The only deposit category currently subject to reserve requirements are net transactions accounts, mainly checking accounts. The total amount of all net transaction accounts held in USA depository institutions, plus US currency held by the nonbank public, is called M1.
A depository institution can satisfy its reserve requirements by holding either vault cash or reserve deposits. An institution that is a member of the Federal Reserve System must hold its reserve deposits at a Federal Reserve Bank. Nonmember institutions can elect to hold their reserve deposits at a member institution on a pass-through basis.
A depository institution's reserve requirements vary by the dollar amount of net transaction accounts held at that institution. Effective December 30, 2010, institutions with net transactions accounts:
The numerical amounts stated above are recalculated annually according to a statutory formula.
Effective December 27, 1990, a liquidity ratio of zero has applied to CDs
, savings deposits, and time deposit
s, owned by entities other than households, and the Eurocurrency liabilities of depository institutions. Deposits owned by foreign corporations or governments are currently not subject to reserve requirements.
When an institution fails to satisfy its reserve requirements, it can make up its deficiency with reserves borrowed either from a Federal Reserve Bank, or from an institution holding reserves in excess of reserve requirements. Such loans are typically due in 24 hours or less.
An institution's overnight reserves, averaged over some maintenance period, must equal or exceed its average required reserves, calculated over the same maintenance period. If this calculation is satisfied, there is no requirement that reserves be held at any point in time. Hence reserve requirements play only a limited role in money creation in the USA.
holds to a voluntary reserve ratio system, with no minimum reserve requirement set. In theory this means that banks could retain zero reserves, effectively allowing an infinite amount of credit money creation. However, the average cash reserve ratio across the entire United Kingdom
banking system is higher, with a 3.1% average as of 1998.
(Ratios are expressed in percentage points.)
Central bank
A central bank, reserve bank, or monetary authority is a public institution that usually issues the currency, regulates the money supply, and controls the interest rates in a country. Central banks often also oversee the commercial banking system of their respective countries...
regulation that sets the minimum reserves
Bank reserves
Bank reserves are banks' holdings of deposits in accounts with their central bank , plus currency that is physically held in the bank's vault . The central banks of some nations set minimum reserve requirements...
each commercial bank
Commercial bank
After the implementation of the Glass–Steagall Act, the U.S. Congress required that banks engage only in banking activities, whereas investment banks were limited to capital market activities. As the two no longer have to be under separate ownership under U.S...
must hold (rather than lend out) of customer deposits
Deposit account
A deposit account is a current account, savings account, or other type of bank account, at a banking institution that allows money to be deposited and withdrawn by the account holder. These transactions are recorded on the bank's books, and the resulting balance is recorded as a liability for the...
and notes
Promissory note
A promissory note is a negotiable instrument, wherein one party makes an unconditional promise in writing to pay a determinate sum of money to the other , either at a fixed or determinable future time or on demand of the payee, under specific terms.Referred to as a note payable in accounting, or...
. It is normally in the form of cash
Currency
In economics, currency refers to a generally accepted medium of exchange. These are usually the coins and banknotes of a particular government, which comprise the physical aspects of a nation's money supply...
stored physically in a bank vault
Bank vault
A bank vault is a secure space where money, valuables, records, and documents can be stored. It is intended to protect their contents from theft, unauthorized use, fire, natural disasters, and other threats, just like a safe...
(vault cash) or deposits made with a central bank
Central bank
A central bank, reserve bank, or monetary authority is a public institution that usually issues the currency, regulates the money supply, and controls the interest rates in a country. Central banks often also oversee the commercial banking system of their respective countries...
.
The reserve ratio is sometimes used as a tool in the monetary policy
Monetary policy
Monetary policy is the process by which the monetary authority of a country controls the supply of money, often targeting a rate of interest for the purpose of promoting economic growth and stability. The official goals usually include relatively stable prices and low unemployment...
, influencing the country's borrowing and interest rate
Interest rate
An interest rate is the rate at which interest is paid by a borrower for the use of money that they borrow from a lender. For example, a small company borrows capital from a bank to buy new assets for their business, and in return the lender receives interest at a predetermined interest rate for...
s by changing the amount of loans available. Western central banks rarely alter the reserve requirements because it would cause immediate liquidity problems for banks with low excess reserves
Excess reserves
In banking, excess reserves are bank reserves in excess of the reserve requirement set by a central bank. They are reserves of cash more than the required amounts. Holding excess reserves is generally considered costly and uneconomical as no interest is earned on the excess amount...
; they generally prefer to use open market operation
Open market operation
Open market operations is the buying and selling of government bonds on the open market by a central bank. It is the primary means of implementing monetary policy by a central bank. The usual aim of open market operations is to control the short term interest rate and the supply of base money in...
s (buying and selling government-issued bonds
Bond (finance)
In finance, a bond is a debt security, in which the authorized issuer owes the holders a debt and, depending on the terms of the bond, is obliged to pay interest to use and/or to repay the principal at a later date, termed maturity...
) to implement their monetary policy. The People's Bank of China
People's Bank of China
The People's Bank of China is the central bank of the People's Republic of China with the power to control monetary policy and regulate financial institutions in mainland China...
uses changes in reserve requirements as an inflation-fighting tool, and raised the reserve requirement ten times in 2007 and eleven times since the beginning of 2010. As of 2006 the required reserve ratio in the United States was 10% on transaction deposit
Transaction deposit
In the United States, transactions deposit is a term used by the Federal Reserve for checkable deposits and other accounts that can be used directly as cash without withdrawal limits or restrictions. They are the only bank deposits that require the bank to keep reserves at the central bank...
s and zero on time deposit
Time deposit
A time deposit is a money deposit at a banking institution that cannot be withdrawn for a certain "term" or period of time...
s and all other deposits.
An institution that holds reserves in excess of the required amount is said to hold excess reserves
Excess reserves
In banking, excess reserves are bank reserves in excess of the reserve requirement set by a central bank. They are reserves of cash more than the required amounts. Holding excess reserves is generally considered costly and uneconomical as no interest is earned on the excess amount...
.
Effects on money supply
The reserve requirement can affect monetary policy, because the higher the reserve requirement is set, the less money banks will have to loan out, leading to lower money creation, and maintaining the purchasing power of the currency previously in use. The effect is exponential, because money that is loaned out can be re-deposited; a portion of that money may again be re-loaned, and so on. The effect on the monetary supply is governed by the following formula: Money SupplyMoney supply
In economics, the money supply or money stock, is the total amount of money available in an economy at a specific time. There are several ways to define "money," but standard measures usually include currency in circulation and demand deposits .Money supply data are recorded and published, usually...
Monetary baseMonetary base
In economics, the monetary base is a term relating to the money supply , the amount of money in the economy...
money multiplierMoney multiplier
In monetary economics, a money multiplier is one of various closely related ratios of commercial bank money to central bank money under a fractional-reserve banking system. Most often, it measures the maximum amount of commercial bank money that can be created by a given unit of central bank money...
rate at which people hold cash (as opposed to depositing it), equal to one minus marginal propensity to consumeMarginal propensity to consume
In economics, the marginal propensity to consume is an empirical metric that quantifies induced consumption, the concept that the increase in personal consumer spending occurs with an increase in disposable income...
the reserve requirement (the percent of deposits that banks are not allowed to lend)However, in the United States (and other countries except Brazil, China, India, Russia), the reserve requirements are generally not frequently altered to affect monetary policy because of the exponential effect and the large time lag between the implementation of the change and the corresponding effects on inflation.
United States
In the United States, a reserve requirement (or liquidity ratio) is a minimum value, set by the Board of Governors of the Federal Reserve SystemFederal Reserve System
The Federal Reserve System is the central banking system of the United States. It was created on December 23, 1913 with the enactment of the Federal Reserve Act, largely in response to a series of financial panics, particularly a severe panic in 1907...
, of the ratio of required reserves to some category of deposits held at depository institutions (e.g., commercial bank
Commercial bank
After the implementation of the Glass–Steagall Act, the U.S. Congress required that banks engage only in banking activities, whereas investment banks were limited to capital market activities. As the two no longer have to be under separate ownership under U.S...
including US branch of a foreign bank, savings and loan association
Savings and loan association
A savings and loan association , also known as a thrift, is a financial institution that specializes in accepting savings deposits and making mortgage and other loans...
, savings bank
Savings bank
A savings bank is a financial institution whose primary purpose is accepting savings deposits. It may also perform some other functions.In Europe, savings banks originated in the 19th or sometimes even the 18th century. Their original objective was to provide easily accessible savings products to...
, credit union
Credit union
A credit union is a cooperative financial institution that is owned and controlled by its members and operated for the purpose of promoting thrift, providing credit at competitive rates, and providing other financial services to its members...
). The only deposit category currently subject to reserve requirements are net transactions accounts, mainly checking accounts. The total amount of all net transaction accounts held in USA depository institutions, plus US currency held by the nonbank public, is called M1.
A depository institution can satisfy its reserve requirements by holding either vault cash or reserve deposits. An institution that is a member of the Federal Reserve System must hold its reserve deposits at a Federal Reserve Bank. Nonmember institutions can elect to hold their reserve deposits at a member institution on a pass-through basis.
A depository institution's reserve requirements vary by the dollar amount of net transaction accounts held at that institution. Effective December 30, 2010, institutions with net transactions accounts:
- Of less than $10.7 million have no minimum reserve requirement;
- Between $10.7 million and $58.8 million must have a liquidity ratio of 3%;
- Exceeding $58.8 million must have a liquidity ratio of 10%.
The numerical amounts stated above are recalculated annually according to a statutory formula.
Effective December 27, 1990, a liquidity ratio of zero has applied to CDs
Certificate of deposit
A certificate of Deposit is a time deposit, a financial product commonly offered to consumers in the United States by banks, thrift institutions, and credit unions....
, savings deposits, and time deposit
Time deposit
A time deposit is a money deposit at a banking institution that cannot be withdrawn for a certain "term" or period of time...
s, owned by entities other than households, and the Eurocurrency liabilities of depository institutions. Deposits owned by foreign corporations or governments are currently not subject to reserve requirements.
When an institution fails to satisfy its reserve requirements, it can make up its deficiency with reserves borrowed either from a Federal Reserve Bank, or from an institution holding reserves in excess of reserve requirements. Such loans are typically due in 24 hours or less.
An institution's overnight reserves, averaged over some maintenance period, must equal or exceed its average required reserves, calculated over the same maintenance period. If this calculation is satisfied, there is no requirement that reserves be held at any point in time. Hence reserve requirements play only a limited role in money creation in the USA.
United Kingdom
The Bank of EnglandBank of England
The Bank of England is the central bank of the United Kingdom and the model on which most modern central banks have been based. Established in 1694, it is the second oldest central bank in the world...
holds to a voluntary reserve ratio system, with no minimum reserve requirement set. In theory this means that banks could retain zero reserves, effectively allowing an infinite amount of credit money creation. However, the average cash reserve ratio across the entire United Kingdom
United Kingdom
The United Kingdom of Great Britain and Northern IrelandIn the United Kingdom and Dependencies, other languages have been officially recognised as legitimate autochthonous languages under the European Charter for Regional or Minority Languages...
banking system is higher, with a 3.1% average as of 1998.
Other countries
Other countries have required reserve ratios (or RRRs) that are statutorily enforced (sourced from Lecture 8, Slide 4: Central Banking and the Money Supply, by Dr. Pinar Yesin, University of Zurich, based on 2003 survey of CBC participants at the Study Center Gerzensee):| Country | Required reserve (in %) | Note |
|---|---|---|
| Australia Australia Australia , officially the Commonwealth of Australia, is a country in the Southern Hemisphere comprising the mainland of the Australian continent, the island of Tasmania, and numerous smaller islands in the Indian and Pacific Oceans. It is the world's sixth-largest country by total area... |
None | Statutory Reserve Deposits abolished in 1988, replaced with 1% Non-callable Deposits |
| Canada Canada Canada is a North American country consisting of ten provinces and three territories. Located in the northern part of the continent, it extends from the Atlantic Ocean in the east to the Pacific Ocean in the west, and northward into the Arctic Ocean... |
None | |
| New Zealand New Zealand New Zealand is an island country in the south-western Pacific Ocean comprising two main landmasses and numerous smaller islands. The country is situated some east of Australia across the Tasman Sea, and roughly south of the Pacific island nations of New Caledonia, Fiji, and Tonga... |
None | 1999 http://www.cnb.cz/m2export/sites/www.cnb.cz/cs/menova_politika/mp_nastroje/download/menove_nastroje.xls |
| Sweden Sweden Sweden , officially the Kingdom of Sweden , is a Nordic country on the Scandinavian Peninsula in Northern Europe. Sweden borders with Norway and Finland and is connected to Denmark by a bridge-tunnel across the Öresund.... |
None | |
| Czech Republic Czech Republic The Czech Republic is a landlocked country in Central Europe. The country is bordered by Poland to the northeast, Slovakia to the east, Austria to the south, and Germany to the west and northwest.... |
2.00 | Since 7 October 2009 |
| Eurozone Eurozone The eurozone , officially called the euro area, is an economic and monetary union of seventeen European Union member states that have adopted the euro as their common currency and sole legal tender... |
2.00 | Since 1999 |
| Hungary Hungary Hungary , officially the Republic of Hungary , is a landlocked country in Central Europe. It is situated in the Carpathian Basin and is bordered by Slovakia to the north, Ukraine and Romania to the east, Serbia and Croatia to the south, Slovenia to the southwest and Austria to the west. The... |
2.00 | Since November 2008 |
| South Africa South Africa The Republic of South Africa is a country in southern Africa. Located at the southern tip of Africa, it is divided into nine provinces, with of coastline on the Atlantic and Indian oceans... |
2.50 | |
| Switzerland Switzerland Switzerland name of one of the Swiss cantons. ; ; ; or ), in its full name the Swiss Confederation , is a federal republic consisting of 26 cantons, with Bern as the seat of the federal authorities. The country is situated in Western Europe,Or Central Europe depending on the definition.... |
2.50 | |
| Latvia Latvia Latvia , officially the Republic of Latvia , is a country in the Baltic region of Northern Europe. It is bordered to the north by Estonia , to the south by Lithuania , to the east by the Russian Federation , to the southeast by Belarus and shares maritime borders to the west with Sweden... |
3.00 | Just after the Parex Bank bailout (24.12.2008), Latvian Central Bank decreased the RRR from 7% (?) down to 3% |
| Poland Poland Poland , officially the Republic of Poland , is a country in Central Europe bordered by Germany to the west; the Czech Republic and Slovakia to the south; Ukraine, Belarus and Lithuania to the east; and the Baltic Sea and Kaliningrad Oblast, a Russian exclave, to the north... |
3.00 | |
| Russia Russia Russia or , officially known as both Russia and the Russian Federation , is a country in northern Eurasia. It is a federal semi-presidential republic, comprising 83 federal subjects... |
4.00 | Effective April 1st 2011, up from 2.5% in January 2011. |
| Chile Chile Chile ,officially the Republic of Chile , is a country in South America occupying a long, narrow coastal strip between the Andes mountains to the east and the Pacific Ocean to the west. It borders Peru to the north, Bolivia to the northeast, Argentina to the east, and the Drake Passage in the far... |
4.50 | |
| India India India , officially the Republic of India , is a country in South Asia. It is the seventh-largest country by geographical area, the second-most populous country with over 1.2 billion people, and the most populous democracy in the world... |
6.00 | May 2011, as per RBI Reserve Bank of India The Reserve Bank of India is the central banking institution of India and controls the monetary policy of the rupee as well as US$300.21 billion of currency reserves. The institution was established on 1 April 1935 during the British Raj in accordance with the provisions of the Reserve Bank of... . |
| Bangladesh Bangladesh Bangladesh , officially the People's Republic of Bangladesh is a sovereign state located in South Asia. It is bordered by India on all sides except for a small border with Burma to the far southeast and by the Bay of Bengal to the south... |
6.00 | Raised from 5.50. Effective from 15 December 2010 |
| Lithuania Lithuania Lithuania , officially the Republic of Lithuania is a country in Northern Europe, the biggest of the three Baltic states. It is situated along the southeastern shore of the Baltic Sea, whereby to the west lie Sweden and Denmark... |
6.00 | |
| Pakistan Pakistan Pakistan , officially the Islamic Republic of Pakistan is a sovereign state in South Asia. It has a coastline along the Arabian Sea and the Gulf of Oman in the south and is bordered by Afghanistan and Iran in the west, India in the east and China in the far northeast. In the north, Tajikistan... |
5.00 | Since November 1st 2008 |
| Taiwan Taiwan Taiwan , also known, especially in the past, as Formosa , is the largest island of the same-named island group of East Asia in the western Pacific Ocean and located off the southeastern coast of mainland China. The island forms over 99% of the current territory of the Republic of China following... |
7.00 | |
| Turkey Turkey Turkey , known officially as the Republic of Turkey , is a Eurasian country located in Western Asia and in East Thrace in Southeastern Europe... |
8.00 | Since February 1st 2011 |
| Jordan Jordan Jordan , officially the Hashemite Kingdom of Jordan , Al-Mamlaka al-Urduniyya al-Hashemiyya) is a kingdom on the East Bank of the River Jordan. The country borders Saudi Arabia to the east and south-east, Iraq to the north-east, Syria to the north and the West Bank and Israel to the west, sharing... |
8.00 | |
| Zambia Zambia Zambia , officially the Republic of Zambia, is a landlocked country in Southern Africa. The neighbouring countries are the Democratic Republic of the Congo to the north, Tanzania to the north-east, Malawi to the east, Mozambique, Zimbabwe, Botswana and Namibia to the south, and Angola to the west.... |
8.00 | |
| Burundi Burundi Burundi , officially the Republic of Burundi , is a landlocked country in the Great Lakes region of Eastern Africa bordered by Rwanda to the north, Tanzania to the east and south, and the Democratic Republic of the Congo to the west. Its capital is Bujumbura... |
8.50 | |
| Ghana Ghana Ghana , officially the Republic of Ghana, is a country located in West Africa. It is bordered by Côte d'Ivoire to the west, Burkina Faso to the north, Togo to the east, and the Gulf of Guinea to the south... |
9.00 | |
| Israel Israel The State of Israel is a parliamentary republic located in the Middle East, along the eastern shore of the Mediterranean Sea... |
9.00 | the Required Reserve Ratio is called Minimum Capital Ratio |
| Mexico Mexico The United Mexican States , commonly known as Mexico , is a federal constitutional republic in North America. It is bordered on the north by the United States; on the south and west by the Pacific Ocean; on the southeast by Guatemala, Belize, and the Caribbean Sea; and on the east by the Gulf of... |
10.50 | |
| Sri Lanka Sri Lanka Sri Lanka, officially the Democratic Socialist Republic of Sri Lanka is a country off the southern coast of the Indian subcontinent. Known until 1972 as Ceylon , Sri Lanka is an island surrounded by the Indian Ocean, the Gulf of Mannar and the Palk Strait, and lies in the vicinity of India and the... |
10.00 | |
| Bulgaria Bulgaria Bulgaria , officially the Republic of Bulgaria , is a parliamentary democracy within a unitary constitutional republic in Southeast Europe. The country borders Romania to the north, Serbia and Macedonia to the west, Greece and Turkey to the south, as well as the Black Sea to the east... |
10.00 | |
| Croatia Croatia Croatia , officially the Republic of Croatia , is a unitary democratic parliamentary republic in Europe at the crossroads of the Mitteleuropa, the Balkans, and the Mediterranean. Its capital and largest city is Zagreb. The country is divided into 20 counties and the city of Zagreb. Croatia covers ... |
14.00 | Down from 17%, effective from 2009-01-14 |
| Costa Rica Costa Rica Costa Rica , officially the Republic of Costa Rica is a multilingual, multiethnic and multicultural country in Central America, bordered by Nicaragua to the north, Panama to the southeast, the Pacific Ocean to the west and the Caribbean Sea to the east.... |
15.00 | |
| Malawi Malawi The Republic of Malawi is a landlocked country in southeast Africa that was formerly known as Nyasaland. It is bordered by Zambia to the northwest, Tanzania to the northeast, and Mozambique on the east, south and west. The country is separated from Tanzania and Mozambique by Lake Malawi. Its size... |
15.00 | |
| Hong Kong Hong Kong Hong Kong is one of two Special Administrative Regions of the People's Republic of China , the other being Macau. A city-state situated on China's south coast and enclosed by the Pearl River Delta and South China Sea, it is renowned for its expansive skyline and deep natural harbour... |
18.00 | |
| Brazil Brazil Brazil , officially the Federative Republic of Brazil , is the largest country in South America. It is the world's fifth largest country, both by geographical area and by population with over 192 million people... |
20.00 | Up from 15%, effective from 2010-12-06 - Ratio is for requirement on term deposits.RRR for foreign currency positions increased to 43.00 on 2010 July 15 http://www.businessweek.com/news/2010-07-22/brazil-signals-rate-increases-to-end-as-growth-cools.html |
| China China Chinese civilization may refer to:* China for more general discussion of the country.* Chinese culture* Greater China, the transnational community of ethnic Chinese.* History of China* Sinosphere, the area historically affected by Chinese culture... |
21.00 | Ratio is for major Chinese Banks on 2011-11-30; it was 21.5% in Nov 2011.Small and medium-size banks have a lower rate of 19.00%. |
| Tajikistan Tajikistan Tajikistan , officially the Republic of Tajikistan , is a mountainous landlocked country in Central Asia. Afghanistan borders it to the south, Uzbekistan to the west, Kyrgyzstan to the north, and China to the east.... |
20.00 | |
| Suriname Suriname Suriname , officially the Republic of Suriname , is a country in northern South America. It borders French Guiana to the east, Guyana to the west, Brazil to the south, and on the north by the Atlantic Ocean. Suriname was a former colony of the British and of the Dutch, and was previously known as... |
25.00 | Down from 27%, effective from 2007-01-01 |
| Lebanon Lebanon Lebanon , officially the Republic of LebanonRepublic of Lebanon is the most common term used by Lebanese government agencies. The term Lebanese Republic, a literal translation of the official Arabic and French names that is not used in today's world. Arabic is the most common language spoken among... |
30.00 | http://news.bbc.co.uk/2/hi/middle_east/7764657.stm |
Historical changes in cash reserve ratios
In some countries, the cash reserve ratios have decreased over time:| Country | 1968 | 1978 | 1988 | 1998 |
|---|---|---|---|---|
| United Kingdom United Kingdom The United Kingdom of Great Britain and Northern IrelandIn the United Kingdom and Dependencies, other languages have been officially recognised as legitimate autochthonous languages under the European Charter for Regional or Minority Languages... |
20.5 | 15.9 | 5.0 | 3.1 |
| Turkey Turkey Turkey , known officially as the Republic of Turkey , is a Eurasian country located in Western Asia and in East Thrace in Southeastern Europe... |
58.3 | 62.7 | 30.8 | 18.0 |
| Germany Germany Germany , officially the Federal Republic of Germany , is a federal parliamentary republic in Europe. The country consists of 16 states while the capital and largest city is Berlin. Germany covers an area of 357,021 km2 and has a largely temperate seasonal climate... |
19.0 | 19.3 | 17.2 | 11.9 |
| United States United States The United States of America is a federal constitutional republic comprising fifty states and a federal district... |
12.3 | 10.1 | 8.5 | 10.3 |
(Ratios are expressed in percentage points.)
See also
- Bank regulationBank regulationBank regulations are a form of government regulation which subject banks to certain requirements, restrictions and guidelines. This regulatory structure creates transparency between banking institutions and the individuals and corporations with whom they conduct business, among other things...
- Capital RequirementCapital requirementCapital requirement refers to -The standardized requirements in place for banks and other depository institutions, which determines how much capital is required to be held for a certain level of assets through regulatory agencies such as the Bank for International Settlements, Federal Deposit...
- Financial repressionFinancial repressionFinancial repression is a term used to describe several measures which governments employ to channel funds to themselves which in a deregulated market would go elsewhere. Financial repression can be particularly effective at liquidating debt....
- Fractional-reserve bankingFractional-reserve bankingFractional-reserve banking is a form of banking where banks maintain reserves that are only a fraction of the customer's deposits. Funds deposited into a bank are mostly lent out, and a bank keeps only a fraction of the quantity of deposits as reserves...
- Full-reserve bankingFull-reserve bankingFull-reserve banking, also known as 100% reserve banking, is a banking practice in which the full amount of each depositor's funds are kept in reserve, as cash or other highly liquid assets...
- Islamic bankingIslamic bankingIslamic banking is banking or banking activity that is consistent with the principles of Islamic law and its practical application through the development of Islamic economics. Sharia prohibits the fixed or floating payment or acceptance of specific interest or fees for loans of money...
- Monetary policy of central banks
- Money creationMoney creationIn economics, money creation is the process by which the money supply of a country or a monetary region is increased due to some reason. There are two principal stages of money creation. First, the central bank introduces new money into the economy by purchasing financial assets or lending money...
- Money supplyMoney supplyIn economics, the money supply or money stock, is the total amount of money available in an economy at a specific time. There are several ways to define "money," but standard measures usually include currency in circulation and demand deposits .Money supply data are recorded and published, usually...
- Statutory Liquidity RatioStatutory Liquidity RatioStatutory liquidity ratio is the amount of liquid assets, such as cash, precious metals or other approved securities, that a financial institution must maintain as reserves other than the cash with the Central Bank...
- Tier 1 capitalTier 1 capitalTier 1 capital is the core measure of a bank's financial strength from a regulator's point of view. It is composed of core capital, which consists primarily of common stock and disclosed reserves , but may also include non-redeemable non-cumulative preferred stock...
- Tier 2 capitalTier 2 capitalTier 2 capital, or supplementary capital, include a number of important and legitimate constituents of a bank's capital base . These forms of banking capital were largely standardized in the Basel I accord, issued by the Basel Committee on Banking Supervision and left untouched by the Basel II accord...
- Basel accordBasel AccordThe Basel Accords refer to the banking supervision Accords —Basel I and Basel II issued and Basel III—by the Basel Committee on Banking Supervision ....
s
External links
- Title 12 of the Code of Federal Regulations (12CFR) PART 204--RESERVE REQUIREMENTS OF DEPOSITORY INSTITUTIONS (REGULATION D) (See Section §204.4 for current reserve requirements.)
- Reserve Requirements - Fedpoints - Federal Reserve Bank of New York
- Reserve Requirements - The Federal Reserve Board
- Hussman Funds - Why the Federal Reserve is Irrelevant - August 2001
- Don't mention the reserve ratio