MANAGEMENT

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: -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: -liabilities = what a bank OWES. The liabilities of a bank include: Checking deposits of customers (called Demand Deposits or DD) Savings Accounts and CDs of customers. Loans borrowed by the bank from the Fed or other banks.

Detailed explanation-5: -Large banks (those with more than $110.2 million in transaction accounts) must hold 10% in reserve. These reserves must be maintained in case depositors want to withdraw cash from their accounts. Banks may keep reserves in two ways.