Required Reserves
Definition
Required reserves are the minimum amount of funds that banks must hold in reserve against their customers' deposits. These reserves are set by central banks to ensure stability in the banking system and control inflation.
Related terms
Reserve Ratio: The percentage of customer deposits that banks are required to hold as reserves.
Excess Reserves: Any additional funds held by banks above the required reserve amount.
Fractional Reserve Banking System: A banking system where only a fraction (portion) of customer deposits is kept on reserve, allowing banks to lend out most of the deposited funds.
"Required Reserves" appears in:
Study guides (1)
AP Macroeconomics - 4.4 Banking and the Expansion of the Money Supply
Additional resources (1)
AP Macroeconomics - Unit 4 Overview: Financial Sector
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AP® and SAT® are trademarks registered by the College Board, which is not affiliated with, and does not endorse this website.