Cash Reserve Ratio
Reserve Ratio
A bank regulation employed by most, but not all, of the world's central banks, that sets the minimum amount of reserves that must be held by a commercial bank.
Origin
Fractional reserve banking — the practice on which reserve requirements are based — traces to 17th-century London goldsmiths, who discovered they could lend a portion of deposited gold while retaining enough to meet withdrawal demands. As central banking developed, formal reserve requirements followed: Sweden's Riksbank, founded in 1668 as the world's first central bank, helped establish the pattern. The U.S. National Bank Act of 1863 codified reserve requirements to ensure liquidity during financial panics — a framework the Federal Reserve inherited and maintained until 2020, when it eliminated reserve requirements entirely.