What Is a Reserve Ratio?

Deposit reserve refers to the financial institution's preparation to ensure that customers withdraw deposits and fund clearing needs. It is a deposit deposited with the central bank. The ratio of deposit reserve required by the central bank to its total deposit is the deposit reserve ratio reserve ratio).

Deposit reserve ratio

Regarding RMB deposits of financial institutions, the statutory assessment shall be conducted on a quarterly basis

normally,

Designed to prevent China's economy from overheating

"Raising interest rates is expected,

Relationship with the bank

Under the deposit reserve system, financial institutions cannot use all the deposits absorbed by them to issue loans. They must retain a certain amount of funds, that is, reserve deposits, in case customers need to withdraw funds. Therefore, the deposit reserve system is beneficial to ensure that financial institutions Customer's normal payment. With the development of the financial system, deposit reserves have gradually evolved into important

The People's Bank of China announced on the evening of February 18, 2012 that starting from February 24, the RMB deposit reserve ratio for depository financial institutions was reduced by 0.5 percentage points. This is the second time since December 5, 2011, the central bank cut the deposit reserve ratio for the first time in three years. After adjustment, the reserve requirement ratio for large financial institutions in China is 20.5%, and the reserve requirement ratio for small and medium-sized financial institutions is 17%.

"The reduction in the deposit reserve ratio is intended to ease the tight liquidity of the banking system," said Lian Ping, chief economist at the Bank of Communications.

The latest statistics from the central bank show that RMB deposits decreased by 800 billion yuan in January, a year-on-year decrease of 780 billion yuan, and the liquidity of the banking system was tight.

Downgrade

Starting from October 15, 2008, the RMB deposit reserve ratio for depository financial institutions will be lowered by 0.5 percentage points; from October 9, 2008, the one-year RMB deposit reserve will be lowered.

The true effectiveness of the deposit reserve ratio policy is reflected in its ability to expand the credit of commercial banks and the adjustment of currency multipliers. Because the commercial bank's credit expansion capacity has a multiplier relationship with the amount of base money invested by the central bank, the size of the multiplier is inversely proportional to the deposit reserve ratio. Therefore, if the central bank adopts austerity policies,

The central bank released on November 19, 2010, and since November 29, the RMB of deposit-related financial institutions has been raised.

First, the reserves for financial institutions' decentralized custody can be pooled to prevent the concentration of depositors and a large number of withdrawals of deposits, which will weaken the ability to pay, have a damaging impact on the economy and finance, and ensure the solvency of financial institutions and the stability of the financial industry;

Second, it is used to regulate and control the credit creation capacity and loan scale of financial institutions, and control the money supply;

Third, strengthen the central bank's financial strength so that it has not only political strength but also strong economic strength.

Side effects of adjusting the deposit rate

Although the adjustment of the statutory reserve ratio has a large impact on the total amount of social money supply, many central banks in many countries, especially western countries, often focus on the adjustment of the rediscount rate and the operation of open market operations when implementing monetary policies. Because adjusting the legal reserve ratio can bring twice the result with less effort in adjusting the total money supply policy, but it also has obvious side effects on society. A small change in the legal reserve ratio will also cause a sharp change in the total amount of social money supply, forcing commercial banks to sharply adjust their credit scale, which will bring a fierce oscillation to the social economy. Especially when the central bank raises the statutory reserve ratio, it leads to a sudden reduction in the scale of social credit, making many productions without subsequent capital investment, unable to form production capacity, and causing a series of problems. Therefore, central banks in various countries tend to be more cautious when adjusting statutory reserve ratios.