In economics, what is the percentage of deposits that banks must keep available rather than lend out called?

A reserve requirement is the percentage of certain bank deposits that a bank must hold as reserves rather than lend out.

Historically, reserve requirements were used to support depositor confidence and influence the amount of credit banks could create. Reserves may be held as cash in a bank’s vault or as balances at the central bank, depending on the country’s rules. The exact base, covered institutions, and permitted assets vary by jurisdiction.

The requirement is different from a capital ratio. Reserves are liquid assets available for payments, while bank capital is the institution’s loss-absorbing net worth. A central bank’s discount rate, by contrast, is the rate charged on certain loans to commercial banks.

Reserve requirements have become less important as a day-to-day monetary-policy tool in some economies. For example, the U.S. Federal Reserve reduced reserve requirement ratios to zero effective March 26, 2020. Banks still face liquidity, capital, and supervisory requirements even when a formal reserve ratio is zero.