Bank reserves
Encyclopedia
Bank reserves are bank
s' holdings of deposit
s in accounts with their central bank
(for instance the European Central Bank
or the Federal Reserve, in the latter case including federal funds
), plus currency
that is physically held in the bank's vault
(vault cash). The central banks of some nations set minimum reserve requirement
s. Even when no requirements are set, banks commonly wish to hold some reserves, called desired reserves, against unexpected events such as bank run
s.
The Bank of England
uses the term rest to describe the same concept.
Bank
A bank is a financial institution that serves as a financial intermediary. The term "bank" may refer to one of several related types of entities:...
s' holdings of deposit
Deposit account
A deposit account is a current account, savings account, or other type of bank account, at a banking institution that allows money to be deposited and withdrawn by the account holder. These transactions are recorded on the bank's books, and the resulting balance is recorded as a liability for the...
s in accounts with their central bank
Central bank
A central bank, reserve bank, or monetary authority is a public institution that usually issues the currency, regulates the money supply, and controls the interest rates in a country. Central banks often also oversee the commercial banking system of their respective countries...
(for instance the European Central Bank
European Central Bank
The European Central Bank is the institution of the European Union that administers the monetary policy of the 17 EU Eurozone member states. It is thus one of the world's most important central banks. The bank was established by the Treaty of Amsterdam in 1998, and is headquartered in Frankfurt,...
or the Federal Reserve, in the latter case including federal funds
Federal funds
In the United States, federal funds are overnight borrowings by banks to maintain their bank reserves at the Federal Reserve. Banks keep reserves at Federal Reserve Banks to meet their reserve requirements and to clear financial transactions...
), plus currency
Currency
In economics, currency refers to a generally accepted medium of exchange. These are usually the coins and banknotes of a particular government, which comprise the physical aspects of a nation's money supply...
that is physically held in the bank's vault
Bank vault
A bank vault is a secure space where money, valuables, records, and documents can be stored. It is intended to protect their contents from theft, unauthorized use, fire, natural disasters, and other threats, just like a safe...
(vault cash). The central banks of some nations set minimum reserve requirement
Reserve requirement
The reserve requirement is a central bank regulation that sets the minimum reserves each commercial bank must hold of customer deposits and notes...
s. Even when no requirements are set, banks commonly wish to hold some reserves, called desired reserves, against unexpected events such as bank run
Bank run
A bank run occurs when a large number of bank customers withdraw their deposits because they believe the bank is, or might become, insolvent...
s.
The Bank of England
Bank of England
The Bank of England is the central bank of the United Kingdom and the model on which most modern central banks have been based. Established in 1694, it is the second oldest central bank in the world...
uses the term rest to describe the same concept.
Terms
- Excess reserves - bank reserves in excess of the reserve requirementReserve requirementThe reserve requirement is a central bank regulation that sets the minimum reserves each commercial bank must hold of customer deposits and notes...
. - Free reserves - the margin by which excess reserves exceed borrowings. (Vogel 2001:421)http://books.google.com/books?id=qxynbtC3JQgC&pg=PA421&lpg=PA421&dq=%22free+reserves%22+economics&source=web&ots=K2in75505N&sig=jYPV8DsYrTB6AoEPoK84EO4NoSQ