Lessons
- How a Bank Works?
- A Bank's Income Statement
- Fractional Reserve Banking System
- Banking: Multiplier Effect and the Money Supply
- Banking: Introduction to Bank Notes
- Banking: How Bank Notes and Checks Work?
- Banking: How Banks Give Out Loans?
- Banking: Understanding Reserve Ratios
- Banking: Introduction to Leverage
Banking: Understanding Reserve Ratios
Reserve requirements are the amount of funds that a bank must hold in reserve against specified deposit liabilities.
The dollar amount of a depository institution's reserve requirement is determined by applying the reserve ratios specified by the central bank of a country. This is also referred to as the "cash reserve ratio" (CRR).
The reserve ratio affects the money supply in a country.
This video explains the concept of reserve ratio and how reserve requirements limit how much lending a bank can do.