Question

At most banks in the United States, the reserve ratio is 10%. Explain why this should or should not be of concern to you as a depositor at your bank.

Answer 1

1) The reserve ratio should be concerned as a depositor at the bank.

2) Reserve Ratio means the portion of liabilities ( reserved ) that the banks should hold rather than invest or lend.

3) This Reserve Ratio is specified by the Federal Reserve Board's Regulation D.

4) Fed may increase or decrease this rate in order to control the funds that banks have to lend.If it lowers, the banks will lend more with lower interest rate which is attractive to borrowers . If it increases, the banks will lend less.

5) If as a depositor , we want to make mass withdrawals , banks should have money in hand. For this purpose fed set up reserve ratio. and we should consider it.