Which statement best defines reserve requirements?
A) They are regulations concerning the amount banks are allowed to borrow from the central bank.
B) They are regulations concerning the amount of reserves banks must hold against deposits.
C) They are regulations concerning reserves banks must hold based on the number and type of loans they make.
D) They are regulations concerning the interest rate at which banks can borrow from the central bank.

Question

Quizplus · Accepted Answer

Reserve requirements are regulations that mandate the minimum amount of cash reserves that banks must hold against deposits. This is a way to ensure that banks have enough funds to meet customer withdrawal demands and to maintain stability within the banking system. It is different from options A, C, and D, which all pertain to other regulations related to central bank lending, loan-making practices, and interest rates.

Which Statement Best Defines Reserve Requirements