Editing Bank reserves (section)

{{Short description|Commercial banks' holdings deposited in central banks}}
{{use mdy dates|date=September 2021}}
{{Use American English|date = March 2019}}
{{Public finance}}
'''Bank reserves''' are a commercial [[bank]]'s cash holdings physically held by the bank,<ref>In the case of the Federal Reserve System in the United States, see, e.g., Regulation D, at 12 C.F.R. sec. 204.5(a) and 12 C.F.R. sec. 204.2(k).</ref> and deposits held in the bank's account with the [[central bank]]. In most countries, the Central bank may set minimum [[reserve requirement]]s that mandate commercial banks under their purview to hold cash or deposits at the central bank equivalent to at least a prescribed percentage of their [[liability (financial accounting)|liabilities]], such as customer deposits. Such sums are usually termed required reserves, and any funds above the required amount are called [[excess reserves]]. These reserves are prescribed to ensure that, in the normal events, there is sufficient liquidity in the banking system to provide funds to bank customers wishing to withdraw cash. Even when there are no reserve requirements, banks often as a matter of prudent management hold reserves in case of unexpected events, such as unusually large net withdrawals by customers (such as before Christmas) or [[bank run]]s. Traditionally, central banks do not pay [[interest]] on reserve balances, but such schemes have become increasingly common in the 21st century.<ref>{{cite journal | author = Ireland, Peter | title = Interest on Reserves: History and Rationale, Complications and Risks | journal = Cato Journal | year = 2019 | volume = 39 | number=2 | pages = 327–337 | url = https://www.cato.org/cato-journal/spring/summer-2019/interest-reserves-history-rationale-complications-risks}}</ref> Funds in banks that are not retained as a reserve are available to be lent, at interest.

In bookkeeping, reserves are ordinarily part of the [[Equity (finance)|equity]] of a company. Bank reserves, on the other hand, are part of the bank's assets. In a bank's annual report, bank reserves are referred to as "[[cash]] and balances at central banks".