Bank reserves

rdf:langString Bank reserves

rdf:langString Bank reserves are a commercial bank's cash holdings physically held by the bank, and deposits held in the bank's account with the central bank. Under the fractional-reserve banking system used in most countries, central banks typically set minimum reserve requirements that require commercial banks under its purview to hold cash or deposits at the central bank equivalent to at least a prescribed percentage of their liabilities, such as customer deposits. Such sums are usually termed required reserves, and any funds above the required amount are called excess reserves. These reserves are prescribed to ensure that, in the normal events, there is sufficient liquidity in the banking system to provide funds to bank customers wishing to withdraw cash. Even when there are no reserve requirements, banks often as a matter of prudent management hold reserves in case of unexpected events, such as unusually large net withdrawals by customers (such as before Christmas) or bank runs. In general, banks do not earn any interest on their reserves. Funds in banks that are not retained as a reserve are available to be lent, at interest. In bookkeeping, reserves are ordinarily part of the equity of a company. Bank reserves, on the other hand, are part of the bank's assets. In a bank's annual report, bank reserves are referred to as "cash and balances at central banks".