ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Definition: Cash Reserve Ratio (CRR) is a specified minimum fraction of the total deposits of customers, which commercial banks have to hold as reserves either in cash or as deposits with the central bank.

Detailed explanation-2: -This amount is called the reserve requirement, and it is the rate that banks must keep in reserve and are not allowed to lend. The Federal Reserve’s Board of Governors sets the requirement as well as the interest rate banks get paid on excess reserves.

Detailed explanation-3: -The Federal Reserve requires banks and other depository institutions to hold a minimum level of reserves against their liabilities. Currently, the marginal reserve requirement equals 10 percent of a bank’s demand and checking deposits.

Detailed explanation-4: -Banks lend money to consumers depending on the percentage of their available cash. In return, the government requires the banks to retain a particular number of assets on hand to meet any withdrawals. This sum is known as the reserve requirement.

Detailed explanation-5: -Reserve Ratio Guidelines Banks with more than $124.2 million in net transaction accounts were required to maintain a reserve of 10% of net transaction accounts. Banks with more than $16.3 million to $124.2 million needed to reserve 3% of net transaction accounts.