Reserve Ratio Calculator
Calculate bank reserve ratios, money multiplier effects, and fractional reserve banking parameters
Calculate Reserve Ratio
Total amount of money deposited in the bank
Amount of deposits held as reserves
Reserve Ratio Analysis
Formula used: Reserve Ratio = (Reserves / Total Deposits) × 100
Money Multiplier: N/A
No Reserves
All deposits are lent out - extremely risky
Maximum lending but zero liquidity buffer
Liquidity Risk: Very High
Banking System Impact
Example Calculation
Federal Reserve Example
Total Deposits: $1,000 million
Required Reserve Ratio: 10%
Required Reserves: $100 million
Loanable Funds: $900 million
Calculation
Reserve Ratio = Reserves / Deposits
Reserve Ratio = $100M / $1,000M
Reserve Ratio = 10%
Money Multiplier = 1/0.10 = 10
Reserve Requirements
United States
0% (since March 2020)
Fed eliminated requirements
Eurozone
1% (typical)
ECB requirement
China
7-13%
Varies by bank size
Money Creation Process
Banks receive deposits from customers
Reserve requirement determines minimum holdings
Excess funds become loanable capital
Money multiplier effect creates new money
Understanding Reserve Ratios
What is the Reserve Ratio?
The reserve ratio is the fraction of total deposits that banks must hold as reserves. This requirement is set by central banks to ensure financial stability and provide a tool for monetary policy implementation.
Why is it Important?
- •Ensures bank liquidity and stability
- •Controls money supply in the economy
- •Provides monetary policy tool for central banks
- •Protects depositors from bank runs
Reserve Ratio Formula
Reserve Ratio = (Reserves / Total Deposits) × 100
- Reserves: Cash held by the bank
- Total Deposits: All customer deposits
- Loanable Funds: Deposits - Reserves
- Money Multiplier: 1 / Reserve Ratio
Note: Lower reserve ratios increase money creation potential but reduce banking system stability.
For Central Banks
Reserve ratios are a powerful monetary policy tool. Increasing ratios reduces money supply, while decreasing ratios stimulates economic activity.
For Commercial Banks
Reserve requirements affect profitability by limiting lendable funds. Banks must balance compliance with profit maximization.
For the Economy
Reserve ratios influence credit availability, interest rates, and overall economic growth through the money multiplier effect.