   
|
|
|
|
Reserve Requirement
|
The reserve requirement is the fraction of deposits that a central bank requires that banks hold rather than lend out. Thus, a reserve requirement is a tool of monetary policy. The reserve requirement has such a powerful effect on the money supply that it is considered too blunt to change regularly. In the US, the Federal Reserve usually sets a reserve requirement of approximately 10%, and even slight changes are made very infrequently. US banks must deposit at least their reserve requirement with one of the Federal Reserve branches. At this reserve requirement rate, the US banking system has a simple deposit multiplier of 10. Thus, with a 10% reserve requirement, the Fed can increase or decrease the broad money supply by a convenient 10 times the amount of any open market operation.
Rate this reserve requirement definition...
|
|
Where is the market headed? The answer may surprise you. Find out
right now with the exclusive & Barron's recommended charts of Chart of the Day.
|
Popular Terms: EBITDA, liquidity ratio, 401a, deferred tax, command economy, 144a, per diem, margin rate, deferred revenue, required rate of return, cancelled check, open position, stock split, ex-dividend, implied volatility, in escrow, irrevocable trust, limit order, quality assurance, risk management, 1035 exchange, Key Rate Duration, class C shares, current ratio, Zero Cost Collar, 1031 exchange, wholly-owned subsidiary, VIX, reverse mortgage, retained earnings, phantom income, option premium, minority interest, labor relations, ex-dividend date, covered put, real GDP, LIBOR, inflation, dividends payable, diluted share, debt service coverage, balance sheet, APR, equities, average price per share, FICO score, FTSE, stock market close
|
|
|
|
