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LeoGlossary: Bank Reserves

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The minimal amount of cash that a bank must keep on hand to satisfy the requirements sent down by the central bank. This is a certain percentage as established by monetary policy.

Bank Reserves are either in the form of vault cash or held in its account at the central bank. The idea behind the reserves is to ensure that banks can meet large withdrawals when required.

This is separate from the reserves the central banks "print" during Quantitative Easing. Under this arrangement, a security, either MBS or Treasury, is swapped for a reserve. The asset goes on the commercial bank's balance sheet with a liability appearing on the central bank's. Of course, the security is places in the asset column.

The difference is bank reserves are legal tender. What the central bank creates under the QE process is not. Thus, it serves as a bank instrument instead of broad economy money.

General:

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