Reserve Balances
Reserve balances are funds held by a financial institution in reserve with a central bank. These funds are held in reserve to meet the institution’s financial obligations and to ensure that it can meet its customers’ demands for cash. Reserve balances are also used to facilitate payments between banks and to provide liquidity to the banking system. Reserve balances are typically held in the form of deposits with the central bank, but they can also be held in the form of securities or other assets.
History of Reserve Balances
The concept of reserve balances has been around since the early days of banking. In the United States, the Federal Reserve System was established in 1913 to provide a central banking system and to regulate the banking system. As part of this system, the Federal Reserve required banks to maintain a certain amount of reserves in order to ensure the stability of the banking system. This requirement was known as the reserve requirement and it was used to ensure that banks had enough funds to meet their customers’ demands for cash.
The reserve requirement has changed over time, but the concept of reserve balances has remained the same. Banks are still required to maintain a certain amount of reserves in order to ensure the stability of the banking system. In addition, reserve balances are also used to facilitate payments between banks and to provide liquidity to the banking system.
Table of Comparisons
| Type of Reserve | Amount |
|---|---|
| Required Reserves | 10% |
| Excess Reserves | 2% |
| Total Reserves | 12% |
Summary
Reserve balances are funds held by a financial institution in reserve with a central bank. These funds are held in reserve to meet the institution’s financial obligations and to ensure that it can meet its customers’ demands for cash. Reserve balances are also used to facilitate payments between banks and to provide liquidity to the banking system. Banks are required to maintain a certain amount of reserves in order to ensure the stability of the banking system. For more information about reserve balances, please visit the Federal Reserve website or the websites of other central banks.
See Also
- Required Reserves
- Excess Reserves
- Central Bank
- Federal Reserve System
- Monetary Policy
- Interest Rates
- Liquidity
- Banking System
- Payments System
- Financial Obligations
