In the banking economics parlance, the concept of reserve ratio plays a very important role as it is predominantly used by the Central banks across the world to maintain the supply of money in the financial system. Reserve Ratio = Reserve Maintained with Central Bank / Deposit Liabilities Relevance and Use of Reserve Ratio Formula Step 3: Finally, the formula for reserve ratio can be derived by dividing the dollar amount of the reserve maintained by the bank (step 1) by the dollar amount of its deposit liabilities (step 2) as shown below. It is also known as net transaction accounts (NTA) or net demand and time liabilities (NDTL). Step 2: Next, determine the dollar amount of the deposit liabilities against which the bank is obligated to maintain reserves. Banks usually capture this information in their financial reporting. Step 1: Firstly, determine the dollar value of the amount held by the subject commercial bank with its Central bank. The formula for Reserve Ratio Formula can be calculated by using the following steps: Therefore, it can be seen that Bank of America maintained a reserve ratio of more than 10% which is the requirement in the US because of its presence in other nations where the requirement may be much higher than 10%. Calculate Bank of America’s reserve ratio for the year 2018 based on the given information. As on December 31, 2018, the bank’s total deposits stood at $1,381,476 million, while the dollar amount of reserve maintained with the Central banks globally stood at $148,341 million. Let us now take the example of Bank of America to illustrate the calculation of the imputed reserve ratio based on its annual report for 2018. Therefore, ASD Bank is required to add another $1.0 million to the existing reserve amount in order to be compliant with the new reserve requirement.
Therefore, the ASD Bank with Reserve Ratio of 8.0% is compliant with the Central bank’s reserve requirement (7.5%). Reserve Ratio = $16 million / $200 million.Reserve Ratio = Reserve Maintained with Central Bank / Deposit Liabilities
Reserve Ratio is calculated using the formula given below Calculate whether the bank is conforming to the central bank’s reserve requirement which is currently pegged at 7.5%. According to the recent regulation of the Central bank of the country, ASD Bank maintained a cash reserve of $16 million with the Central bank given its deposit liabilities to the tune of $200 million for the given period. Let us take the example of the ASD Bank to illustrate the calculation of the Reserve Ratio.
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You can download this Reserve Ratio Formula Excel Template here – Reserve Ratio Formula Excel Template Reserve Ratio Formula – Example #1
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