Reserves

Definition

Reserves refer to the portion of a bank's assets that is held in cash or deposited with the central bank. These reserves serve as a buffer against potential withdrawals by depositors and help ensure the stability of the banking system.

Related terms

Fractional Reserve Banking: A banking system where banks are required to keep only a fraction of their deposits as reserves while lending out the rest.

Required Reserves: The minimum amount of reserves that banks must hold based on regulations set by the central bank.

Excess Reserves: Reserves held by banks above the required reserve amount, which can be used for additional lending or investment activities.