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In theory, this meant that commercial banks could retain zero reserves. The average cash reserve ratio across the entire United Kingdom banking system, though, was higher during that period, at about 0.15% as of 1999. [10] From 1971 to 1980, the commercial banks all agreed to a reserve ratio of 1.5%. In 1981 this requirement was abolished. [10]
The insight that banks may adjust their reserve/deposit ratio endogenously, making the money multiplier unstable, is old. Paul Samuelson noted in his bestselling textbook in 1948 that: By increasing the volume of their government securities and loans and by lowering Member Bank legal reserve requirements, the Reserve Banks can encourage an ...
The key financial ratio used to analyze fractional-reserve banks is the cash reserve ratio, which is the ratio of cash reserves to demand deposits. However, other important financial ratios are also used to analyze the bank's liquidity, financial strength, profitability etc.
In nonprofit accounting, an "operating reserve" is the unrestricted cash on hand available to sustain an organization, and nonprofit boards usually specify a target of maintaining several months of operating cash or a percentage of their annual income, called an operating reserve ratio.
At the end of January 2009, excess reserve balances within the Federal Reserve System stood at $793 billion [19] but less than two weeks later on February 11, 2009, total reserve balances had fallen to $603 billion. On April 1, 2009, reserve balances had again increased to $806 billion. By August 2011, they had reached $1.6 trillion. [20]
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Interest rates, especially on federal funds (ultra-short-term loans between banks), are themselves influenced by open market operations. The monetary base has traditionally been considered high-powered because its increase will typically result in a much larger increase in the supply of demand deposits through banks' loan-making, a ratio called ...
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