Banking & Financial Awareness
Reserve requirement
Type of regulation on commercial banks
Overview
Reserve requirements are central bank regulations that set the minimum amount that a commercial bank must hold in liquid assets. This minimum amount, commonly referred to as the commercial bank's reserve, is generally determined by the central bank on the basis of a specified proportion of deposit liabilities of the bank. This rate is commonly referred to as the cash reserve ratio or shortened as reserve ratio. Though the definitions vary, the commercial bank's reserves normally consist of cash held by the bank and stored physically in the bank vault, plus the amount of the bank's balance in that bank's account with the central bank. A bank is at liberty to hold in reserve sums above this minimum requirement, commonly referred to as excess reserves.
Source: Wikipedia — Reserve requirement (CC BY-SA)
Key concepts
How Reserve requirement connects to the ideas, people and events around it.
A central bank, reserve bank, national bank, state bank, or monetary authority is a financial institution that manages the monetary policy of a country or monetary union.
Bank reserves are a commercial bank's cash holdings physically held by the bank, and deposits held in the bank's account with the central bank.
A deposit account is a bank account maintained by a financial institution in which a customer can deposit and withdraw money. Deposit accounts can be savings accounts, current accounts or any of several other types of accounts explained below.
A currency is a standardized form of money, in use or circulation as a medium of exchange, for example banknotes, coins, electronic balances in online bank accounts, and central bank digital currencies (CBDCs).
A bank vault is a secure room used by banks to store and protect valuables, cash, and important documents. Modern bank vaults are typically made of reinforced concrete and steel, with complex locking mechanisms and security systems.
Excess reserves are bank reserves held by a bank in excess of a reserve requirement for it set by a central bank.
Monetary policy is the policy adopted by the monetary authority of a nation to affect monetary and other financial conditions to accomplish broader objectives like high employment and price stability.
In macroeconomics, money supply refers to the total volume of money held by the public at a particular point in time. There are several ways to define "money", but standard measures usually include currency in circulation and demand deposits.
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Questions about Reserve requirement
What is Reserve requirement?
Reserve requirements are central bank regulations that set the minimum amount that a commercial bank must hold in liquid assets. This minimum amount, commonly referred to as the commercial bank's reserve, is generally determined by the central bank on the basis of a specified proportion of deposit liabilities of the bank. This rate is commonly referred to as the cash reserve ratio or shortened as reserve ratio.
What are the key concepts related to Reserve requirement?
The main concepts connected to Reserve requirement include Central bank, Bank reserves, Deposit account, Currency, Bank vault, Excess reserves, Monetary policy, Money supply. Each is linked on the map above with its own summary.
Which exams cover Reserve requirement?
Reserve requirement is part of Banking & Financial Awareness, which appears in the syllabus of IBPS PO, IBPS Clerk, IBPS RRB, IBPS SO, SBI PO, SBI Clerk and 4 more exams.