1. What is Reserve Requirement?

The reserve requirement (or reserve ratio) is the percentage of deposits that banks must hold in reserve and not lend out. It's a key tool used by central banks to influence money supply and ensure financial stability.

2. How Does the Calculator Work?

The calculator uses the reserve requirement formula:

Where:

• \( Deposits \) — Total bank deposits in USD
• \( RRR \) — Reserve requirement ratio (expressed as decimal, e.g., 0.1 for 10%)

Explanation: The formula calculates the minimum amount of reserves a bank must hold based on its deposit liabilities.

3. Importance of Reserve Requirement

Details: Reserve requirements help central banks control money supply, prevent bank runs, and maintain stability in the banking system. Changes in RRR can significantly impact lending capacity.

4. Using the Calculator

Tips: Enter total deposits in USD and the reserve requirement ratio as a decimal (e.g., 0.1 for 10%). Both values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What's a typical reserve requirement ratio?
A: Ratios vary by country and bank size, typically ranging from 0% to 10% in many economies.

Q2: How does RRR affect money supply?
A: Higher RRR reduces money supply (less available for lending), while lower RRR increases it.

Q3: Do all banks have the same requirement?
A: No, requirements may differ based on bank size, deposit type, or regulatory category.

Q4: What are reserve requirement exemptions?
A: Some jurisdictions exempt certain deposits or have tiered systems with different ratios.

Q5: How often do requirements change?
A: Changes are relatively infrequent and are important monetary policy decisions.