Reserve requirement

Definition

The reserve requirement is a central bank regulation that sets the minimum amount of reserves a commercial bank must hold as a percentage of its deposits. This measure ensures financial stability and liquidity in the banking system.

Related terms

Central Bank: The institution that manages a country's currency, money supply, and interest rates.

Liquidity:

The ease with which an asset can be converted into cash without affecting its market price.

Bank Run:

A situation where many depositors simultaneously withdraw funds from a bank due to concerns over the bank's solvency or stability