The fed can adjust the reserve ratio in order to shape the lending ability of commercial banks.
A reserve ratio is the portion of a reserveable liability that a commercial bank must hold instead of lending or investing. This is a requirement set by the country's central bank (the Federal Reserve in the United States). Also called cash reserve ratio.
Reserve ratio requirements are set by the country's central bank. B. For the United States, the Federal Reserve System. The bank calculation is obtained by dividing the cash reserves held at the central bank by the bank deposits, expressed as a percentage.
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