ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -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-2: -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-3: -Key Takeaways. The reserve ratio, set by the central bank, is the percentage of a commercial bank’s deposits that it must keep in cash as a reserve in case of mass customer withdrawals. In the U.S., the Fed uses the reserve ratio as an important monetary policy tool to increase or decrease the economy’s money supply.

Detailed explanation-4: -Cash Reserve Ratio (CRR) is the share of a bank’s total deposit that is mandated by the Reserve Bank of India (RBI) to be maintained with the latter as reserves in the form of liquid cash. Click here to know about SLR & Repo Rate. Current cash reserve ratio is at 4%, this will be changed to 4.5% from May 21st.

Detailed explanation-5: -In turn, this helps to stabilise money market rates. Banks are currently required to hold a minimum of 1% of specific liabilities, mainly customers’ deposits, at their national central bank.