1. What is Reserve Ratio?

The reserve ratio is the fraction of total deposits that a bank keeps on hand as reserves. It's a key measure in banking that indicates how much money is available for lending versus how much is kept in reserve.

2. How Does the Calculator Work?

The calculator uses the reserve ratio formula:

Where:

• \( \text{Reserves} \) — Amount of money held in reserve (USD)
• \( \text{Deposits} \) — Total deposits held by the bank (USD)

Explanation: The ratio shows what percentage of deposits are being held in reserve rather than loaned out.

3. Importance of Reserve Ratio

Details: Central banks use reserve requirements to ensure banks maintain enough liquidity. Higher ratios mean more conservative banking, while lower ratios allow more lending but increase risk.

4. Using the Calculator

Tips: Enter reserves and deposits in USD. Both values must be positive numbers. The result will be shown as a percentage.

5. Frequently Asked Questions (FAQ)

Q1: What is a typical reserve ratio?
A: Reserve requirements vary by country, often ranging from 0% to 10% of deposits.

Q2: How does the reserve ratio affect money supply?
A: Lower reserve ratios allow banks to lend more, increasing money supply. Higher ratios have the opposite effect.

Q3: What's the difference between required and excess reserves?
A: Required reserves are minimum amounts set by regulators, while excess reserves are additional amounts held voluntarily.

Q4: Do all banks have the same reserve requirements?
A: Requirements may differ based on bank size, deposit types, and jurisdiction.

Q5: How often do reserve ratios change?
A: Central banks may adjust requirements in response to economic conditions, though changes are relatively infrequent.