Definition of Reserve requirements:
Reserve requirements are the amount of cash that banks must have, in their vaults or at the closest Federal Reserve bank, in line with deposits made by their customers. Set by the Fed's board of governors, reserve requirements are one of the three main tools of monetary policy — the other two tools are open market operations and the discount rate.
Banks loan funds to customers based on a fraction of the cash they have on hand. The government makes one requirement of them in exchange for this ability: keep a certain amount of deposits on hand to cover possible withdrawals. This amount is called the reserve requirement, and it is the rate that banks must keep in reserve and are not allowed to lend.
Minimum amount of cash or cash-equivalents (computed as a percentage of deposits) that banks and other depository institutions (credit unions, insurance companies) are required by law to keep on hand, and which may not be used for lending or investing. Reserve requirements serve as (1) a safeguard against a sudden and inordinate demand for withdrawals (as in a run on a bank), and (2) as a control mechanism for injecting cash (liquidity) into, or withdrawing it from, an economy.
How to use Reserve requirements in a sentence?
- Reserve requirements are the amount of funds that a bank holds in reserve to ensure that it is able to meet liabilities in case of sudden withdrawals.
- The bank told me how much they kept in reserve requirements and it astonished me because the number was very high.
- Reserve requirements are a tool used by the central bank to increase or decrease money supply in the economy and influence interest rates.
- You should always know what the full reserve requirements are so that you do not ever go below that level.
- Reserve requirements are currently 10% in the U.S. as well as many other parts of the world.
- The reserve requirements of the bank were met as the vault contents were especially safe from potential theft so we proceeded.
Meaning of Reserve requirements & Reserve requirements Definition