[This is part of the series: The Complete Guide To Economics 101.]

What is a bank reserve ratio?

A Bank Reserve Ratio is the fraction of total deposits that a bank holds in reserve.

Take, or instance, a bank with $50 million in deposits.

And bank reserves of 5 million.

This bank’s reserve ratio is 5/50.

5/50= 1/10 = 10%.

[This is part of the series: The Complete Guide To Economics 101.]

What are bank reserves?

Bank Reserves are the portion of deposits that are held – on hand – by a bank.

For instance, say a given bank has $5 billion in deposits.

To fulfill possible claims on those deposits, the bank might wish to keep $1 billion on hand, while lending out the other $4 billion in loans.

Obviously, the more reserves that are kept, the safer.

But then there is less money to lend for profit.

In most countries, however, the level of bank reserves is regulated.