Reserve Requirement
A reserve requirement is a regulation set by a central bank that requires financial institutions to hold a certain amount of reserves in order to ensure the stability of the financial system. The reserve requirement is typically expressed as a percentage of the total deposits held by the institution. The reserve requirement is used to control the money supply and to ensure that banks have sufficient funds to meet customer withdrawals.
History of Reserve Requirement
The reserve requirement has its roots in the banking system of the United States. The Federal Reserve Act of 1913 established the Federal Reserve System and gave it the authority to set reserve requirements for banks. The Federal Reserve has used the reserve requirement to control the money supply since its inception. The reserve requirement has been adjusted numerous times over the years in response to changes in the economy and the banking system.
Comparison of Reserve Requirements
| Country | Reserve Requirement (%) |
|---|---|
| United States | 10 |
| United Kingdom | 0 |
| Japan | 2 |
| China | 17 |
Summary
The reserve requirement is an important tool used by central banks to control the money supply and ensure the stability of the financial system. The reserve requirement has been used in the United States since the establishment of the Federal Reserve System in 1913. Other countries have different reserve requirements, ranging from 0% to 17%. For more information about reserve requirements, visit the websites of the Federal Reserve, the Bank of England, the Bank of Japan, and the People’s Bank of China.
See Also
- Money Supply
- Interest Rates
- Monetary Policy
- Central Bank
- Federal Reserve System
- Bank of England
- Bank of Japan
- People’s Bank of China
- Liquidity
- Capital Requirements
