Reserve requirement
The reserve ( MR short, even reserve requirements ) is a proportional bank deposit that is at least required and thus a banking regulation.
In most systems, the minimum reserve commercial banks are forced to pay a minimum reserve with the Central Bank. The reserve is a monetary policy instrument of the respective central banks to control the demand of commercial banks for central bank money. It is set by the central bank as a percentage of customer deposits of each commercial bank.
Operation
Reserve ratio
To determine the amount of the compulsory minimum reserve of the so-called reserve ratio is determined by the central banks. He describes the proportional relationship between the reserve and the volume of demand deposits that commercial banks have issued the non-banking sector. For the control of money creation that sentence plays in reality a minor role, since the phrase is rarely changed.
The set has a direct impact on the liquidity position of banks. An increase in reserve requirements deprives the banks liquidity, lowering leads to liquidity. Here are the minimum reserves to influence the money supply and lending by raising the minimum reserve limits the money creation. Depending on how high the current reserve interest rate is in relation to the possible income from other forms of investment, the reserve may adversely affect the profitability of financial institutions. The teams competing are but the proceeds of the credit for the award of which it is needed.
Monetary policy instrument
The reserve is an amount effective liquidity and political instrument of monetary policy. It will allow the central bank to make the commercial banks in their credit distribution by their own loans from the central bank depends, by increasing the reserve requirement or lower. The commercial banks are dependent in return for central bank money.
Maintains a commercial bank at the central bank an amount that exceeds the reserve, the excess amount is a surplus reserve. The surplus reserve is usually very low. More precisely, it corresponds to the demand deposits of commercial banks at the central bank minus the reserve minus cash holdings of commercial banks, which is provided for withdrawals of non-banks.
In the case of the European Economic and Monetary Union the most important monetary policy instrument is the main refinancing operations of the European Central Bank. The main functions of the minimum reserve system are to stabilize money market rates and to enlarge the structural liquidity shortage in the banking system.