Bank deposit reserve, English is Bank Reserves.It is a reserve cash stored in its insurance library or stored in the central bank within a given time.
The setting of bank deposit reserves is to prevent banks from being unable to meet customers’ withdrawal needs, and crowding and panic occur.
Therefore, central banks in different countries will make a minimum reserve cash on financial institutions in their territory.
Financial institutions that need to implement bank deposit reserve include commercial banks, savings banks, credit cooperatives, and foreign banks’ branches or agencies in their own country.
- The bank deposit reserve is a cash reserved for banks to meet the needs of customers withdrawal and prevent crowding and panic;
- The bank’s reserve can be stored in its insurance library, or it can be stored in the central bank;
- The central bank will set the minimum deposit reserve requirements for financial institutions, often controlled by setting the deposit reserve rate;
- The United States Federal Reserve controls the US dollar circulation in the financial market by setting up the minimum reserve requirements.
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Directory of this article
- What is a bank reserve?
- How to calculate the minimum deposit reserve?
- What is the effect of setting the minimum deposit reserve?
- How does the Federal Reserve use the minimum deposit reserve requirement to adjust the economy?
- More macroeconomics
What is a bank reserve?
Central banks in various countries set a bank’s minimum deposit reserve requirement (Reserve Requirement).
The minimum reserve cash can be stored in the insurance library of financial institutions, or it is stored in the central bank as an account deposit, so that when the customer’s withdrawal is withdrawn, it has sufficient cash to provide customers.
The central bank of the United States is Fed(Federal Reserve), the Central Bank of China is the People’s Bank of China.The Fed’s bank deposit reserve in the banks of banks will pay a certain interest.This interest is called ” Reserve balance interest“, English is Internet on Reserve Balances.
The minimum deposit reserve calculation method is to multiply all the deposits of financial institutions at the Reserve Requirement Ratio.The minimum deposit reserve ratio is generally determined by the central bank.Different financial institutions will have different minimum minimum minimum minimum minimum minimum minimum.The bank reserve ratio, generally large amounts of financial institutions have a high minimum deposit reserve.
The level of deposit reserve rate will not only affect the minimum deposit that financial institutions maintain, but also affect the overall economic activities to a certain extent.currency supply(Money Supply).
How to calculate the minimum deposit reserve?
The minimum reserve amount required for all financial institutions is that the total deposit of financial institutions is multiplied by the deposit reserve rate at that time, that is,:
Bank deposit reserve amount = bank holding total deposit x deposit reserve ratio
Bank Reserve Requirement = Total Deposits X Reserve Requirement Ratio
Among them, the minimum deposit reserve ratio, English is Reserve Requirement Ratio, is the ratio of the minimum cash retention of financial institutions.
The minimum deposit reserve ratio is formulated by the central bank.For financial institutions of different volumes, central banks often set up different minimum deposit reserve ratios.
All deposits of different financial institutions are multiplied by the deposit reserve ratio, which is equal to the cash reserves that financial institutions must keep at that time.
Therefore, financial institutions multiplied their own deposits by the deposit reserve rate equal to the minimum reserve amount currently reserved.
For example, the total deposit of a commercial bank was 10 billion US dollars on the day, and the deposit reserve ratio of the day was 10%.On the same day, the minimum reserve amount of this commercial bank must be 10 billion US dollars by 10%, that is, 1 billion, that is, 1 billion, that is, 1 billion, 1 billionDollar.
In the United States, the deposit reserve ratio is by the Federal Reserve Regulations D It is stipulated that since the establishment of the United States, the value of the deposit reserve ratio ranges from 0%to 10%.
In March 2020, in order to cope with COVID-19’s impact on the economy, the Fed reduced the minimum deposit reserve to zero, with the purpose of drums to increase loans.
For financial institutions of different volumes, the Fed uses different minimum deposit reserves.
- For financial institutions with less deposit than exempting amount, the minimum deposit reserve rate = 0;
- For financial institutions with the minimum deposit reserve rate = 3%for financial institutions with a financial institution that is greater than exempted amounts than exemption (exempt amount), but less than low reserve transmission;
- For financial institutions with a Low Reserve Transche Amount, the minimum deposit reserve rate is = 10%.
The following is the exemption amount and low reserve amount before March 2020:
| date | Low reserve requirements Low Reserve Transche Amount (Millions) | Exemption amount Exempt amount (Milliions) |
|---|---|---|
December 28, 2000 | 42.8 | 5.5 |
December 27, 2001 | 41.3 | 5.7 |
December 26, 2002 | 42.1 | 6.0 |
December 25, 2003 | 45.4 | 6.6 |
December 23, 2004 | 47.6 | 7.0 |
December 22, 2005 | 48.3 | 7.8 |
December 21, 2006 | 45.8 | 8.5 |
December 20, 2007 | 43.9 | 9.3 |
January 1, 2009 | 44.4 | 10.3 |
December 31, 2009 | 55.2 | 10.7 |
December 30, 2010 | 58.8 | 10.7 |
December 29, 2011 | 71.0 | 11.5 |
December 27, 2012 | 79.5 | 12.4 |
January 23, 2014 | 89.0 | 13.3 |
January 22, 2015 | 103.6 | 14.5 |
January 21, 2016 | 110.2 | 15.2 |
January 19, 2017 | 115.1 | 15.5 |
January 18, 2018 | 122.3 | 16.0 |
January 17, 2019 | 124.2 | 16.3 |
January 16, 2020 | 127.5 | 16.9 |
January 14, 2021 | 182.9 | 21.1 |
January 1, 2022 | 640.6 | 32 |
For financial institutions,
- The higher the deposit reserve amount, the easier it is to meet the customer’s withdrawal needs.The lower the probability of the crowding panic;
- The lower the amount of deposit reserve, the less the amount of the bank must retain.When the customer has a large amount of withdrawal, the amount of withdrawal may be unable to withdraw, and the higher the probability of the crowding and panic.
What is the effect of setting the minimum deposit reserve?
The most direct role of the minimum bank deposit reserve is to adjust the minimum cash amount required in all financial institutions, and the central bank will adjust the bank deposit reserves by adjusting the bank deposit reserve ratio.
The primary purpose of the Fed’s deposit reserve ratio is to ensure that financial institutions retain sufficient cash, which can meet customers’ large-scale withdrawal needs, and avoid malignant events such as crowding and panic.
Secondly, the Fed will adjust the overall economy by adjusting the deposit reserve ratio.For example, by reducing the bank’s minimum reserve amount by reducing the deposit reserve ratio, banks can lend loans at lower interest rates and more capital.Consumers and companies can obtain funds at a lower cost and make funds for low costs for funds for low costs for funds for low costs for funds for low costs for funds for low costs for funds for low costs for funds for low costs for funds for low costs for funds for low costs for funds for low costs for funds for low costs for funds for low costs for funds for low costs for funds for low costs for funds for low costs for funds for low costs for funds for low costs for funds for low costs for funds for low costs for funds for low costs for funds for low costs for funds for low costs for funds for low costs for funds for low costs for their funds for funds for lower costs.The scale of consumption or expansion of operations, and the increase in currency supply in the market economy, which finally achieves the purpose of stimulating the accelerated development of the economy.
Or, the Fed can increase the minimum reserve amount that financial institutions must hold by increasing the deposit reserve rate.The bank’s lending capital decreases, the interest rate will increase, and the cost of consumers and manufacturers will get higher.To control the amount of currency supply in the market, slow down the speed of economic development, and slow down inflation.
For bank reserves deposited in the Federal Reserve, the Fed starts from October 6, 2008.For banks in the Fed’s account, the Fed started to issue interest on this part of the reserve.The interest rate of this interest has become the law.The reserve interest rate (IORR).
For the deposit that exceeds the legal amount of the reserve, the Federal Reserve pays the deposit bank to pay some excess reserve interest.The interest rate of this interest is called an excess reserve interest rate (Ioer for short).The Federal Reserve Council is responsible for formulating [source] Essence
Since July 29, 2021, IORR and Ioer have been replaced by another IOBR.IOBR is the abbreviation of the Internet on Balanced Reserves, which refers to the interest rate issued by the Federal Reserve to the reserve balance of the Fed in the Federal Reserve [source] Essence
How does the Federal Reserve use the minimum deposit reserve requirement to adjust the economy?
As the bank’s minimum deposit reserve will directly affect the cash reserves of financial institutions such as banks, it will affect the level of bank loan interest rates, which will affect the level of currency supply in the market, and ultimately affect the overall market economy.The specific process is:
| Reduce deposit reserve requirements | Equipment of deposit reserve requirements | |
|---|---|---|
The purpose of the Federal Reserve | Increase the amount of US dollar circulation, stimulate the economy | Reduce US dollar circulation and cool down economic activities |
The amount of reserve that banks must retain | reduce | Increase |
Bank loan capital amount | Increase | reduce |
Bank loan interest rate | reduce | Rise |
Consumer or producer borrowing costs | reduce | Rise |
Market currency supply | Increase | reduce |
Personal consumption power | Increase | reduce |
Overall market economy status | Stimulate consumption, increase the speed of overall economic development | Inhibit consumption, the overall economic development speed slows down |
It can be seen that the bank deposit reserve has also played a very important role in the development of the overall economic development.
- Regarding the requirements of the Central Bank’s reserve reserve, the amount of cash that financial institutions must retain can be reserved, and more cash can be used for loan loans, and interest rates will be reduced at the same time.This will increase the money supply in the overall economy and effectively stimulate consumption.Accelerate economic growth.Therefore, in the economic recession period, the central bank will take a reducing deposit reserve ratio to make economic control.
- When the central bank’s increase in deposit reserve requirements, financial institutions must retain more cash amounts.Loan-loan capital will decrease, interest rates will increase at the same time, and the amount of circulation currency on the market will decrease.It controls the economic growth rate or controls inflation.Condition.Therefore, when the overall economy is too fast, the central bank will adopt a raising reserve for economic regulation.
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