Overview
Bank reserve management is a critical aspect of banking that ensures financial stability and liquidity. It involves understanding the legal reserve requirements set by central banks, which dictate how much money banks must hold in reserve against their deposits. Effective management of these reserve...
Key Terms
Example: If the reserve requirement is 10%, a bank with $1 million in deposits must hold $100,000 in reserves.
Example: A bank with sufficient cash on hand is considered liquid.
Example: Lowering interest rates is a common monetary policy tool.
Example: A bank faces credit risk when it lends money to individuals or businesses.
Example: A bank may face operational risk if its IT systems fail.
Example: Banks manage cash flow to ensure they can meet withdrawal demands.