ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -How Are Bank Reserves Calculated? A bank’s reserves are calculated by multiplying its total deposits by the reserve ratio. For example, if a bank’s deposits total $500 million, and the required reserve is 10%, multiply 500 by 0.10. The bank’s required minimum reserve is $50 million.

Detailed explanation-2: -The required reserve ratio can be calculated by simply dividing the amount of money a bank is required to hold in reserve by the amount of money it has on deposit. For example, if a bank has $10 million in deposits and $500, 000 are required to be held in reserve, then the required reserve ratio would be 1/20 or 5%.

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: -There is no cash reserve ratio formula. In technical terms, CRR is calculated as a percentage of Net Demand and Time Liabilities (NDTL). NDTL for banking refers to the aggregate savings account, current account and fixed deposit balances held by a bank.

Detailed explanation-5: -The dollar amount of a depository institution’s reserve requirement is determined by applying the reserve requirement ratios specified in the Board’s Regulation D (Reserve Requirements of Depository Institutions, 12 CFR Part 204) to an institution’s reservable liabilities (see table of reserve requirements).