Deposit Reserve | what is deposit reserve?

Deposit Reserve refers to deposits prepared by financial institutions in the central bank to ensure that customers need to extract deposits and clear funds. The ratio of deposit reserve required by the Central Bank to the total amount of deposits is the deposit reserve ratio.
Deposit Reserves are the funds required to restrict the credit expansion of financial institutions and ensure that customers can withdraw deposits and clear funds. The statutory deposit reserve ratio is the ratio of the deposit reserve paid by financial institutions to the total amount of deposits paid by the central bank according to regulations. This part is a risk reserve and cannot be used to issue loans. The higher the proportion, the greater the execution of the tightening policy.
For example, if the deposit reserve ratio is 7%, it means that every time a financial institution absorbs a deposit of 1 million Yuan, it will deposit a deposit reserve of 70 thousand yuan to the central bank, with a loan fund of 0.93 million yuan. If the deposit reserve ratio is raised to 7.5%, the loanable funds of financial institutions will be reduced to 0.925 million yuan.
Background of the current increase in the deposit reserve ratio 1. Inflation caused by excess liquidity, the increase in the reserve ratio can effectively reduce liquidity. 2. Due to the current credit crisis in the United States, raising the reserve ratio can ensure the financial system's ability to pay, increase the bank's ability to resist risks, and prevent financial risks.