Bank Reserves

Bank reserves mean funds that banks hold at the central bank or as cash to meet obligations. In simple terms, bank reserves are money banks keep available for payments, withdrawals, and regulatory needs. Bank reserves are important because they affect banking system liquidity and the ability of banks to lend. Central bank actions can increase or reduce reserves in the financial system. For example, when the Fed buys bonds, it can increase bank reserves by adding money to the banking system. Bank reserves are not the same as a bank’s total deposits. Deposits are money customers place at banks, while reserves are funds banks hold to support operations and requirements.