Definition
- Reserve requirement
- The reserve requirement is the proportion of its deposits that a bank must hold rather than lend.
- Not to be confused with: Money multiplier
- The money multiplier is the number of pounds of deposits the banking system creates from each pound of reserves, and it equals one divided by the reserve requirement.
Test yourself
What is the difference between reserve requirement and money multiplier?
The reserve requirement is the share held back; the multiplier is one divided by it.