What is the norm for mandatory reserves?
The required reserve ratio is considered one of thethe most effective instruments of the state's monetary and credit policy. This indicator is set by the central bank of the country for commercial credit organizations and is fixed by legislation. The purpose of the formation of reserves is to insure the entire banking system from unforeseen circumstances, to maintain the level of liquidity and profitability. In addition, they increase the reliability and guarantee the safety of savings of citizens who are on deposit accounts.
As a motivating factor, whenobligatory reserves were created, there was a desire to always have a certain amount of money, due to which the bank timely returns the client's money. In the current economic situation, the government uses such reserves to regulate the volume of the money supply. For example, when there is too much cash in circulation, and therefore the rate of inflation is accelerating, the norm of mandatory reserves is specially increased. Thus, there is a rise in the cost of loans and the containment of part of the funds in the settlement and cash center of the national bank.
Do not forget that with the help of similarreserves, the government controls natural processes in the financial market, adjusting the value of securities. However, this tool should be properly managed, because, in addition to its positive impact, you can identify a number of shortcomings. For example, the constantly changing norm of mandatory reserves creates an imbalance in the entire banking system, since it is quite difficult to adapt to any new conditions for any credit institution. In addition, the amounts allocated to the reserve are taxed, which means that the commercial tank loses its part of the funds irrevocably.
Bank reserves should contain enoughmeans to maintain the financial stability of the organization in a changing environment. If they are not enough, commercial banks have to borrow from a national bank or sell part of their securities. And as a result, the level of overall liquidity is significantly reduced. Such a picture can be observed with an increase in reserve rates. When they are lowered, credit resources are released, which are used to pay off existing debts, which, accordingly, increases liquidity.
The norm of mandatory reserves can affectthe interest rate paid by legal entities or individuals as a reward for the use of the loan. Of course, when the government pursues a policy of "expensive money", the amount of deductions to the reserve increases - and then the free credit resources at the bank's disposal become smaller. This is the reason for the growth in the interest rate on loans. However, it is not always possible for a central bank to influence commercial credit organizations. There may be a situation in which banks conduct large-scale operations and have a large number of customers, which means that their profits will be quite high. A stable financial position allows you to transfer reserve requirements to the account at the national bank without changing the interest rates for loans and deposits.
Therefore, public authorities should carefullyto study the market situation, to investigate the banking sector, and only then to take concrete measures of influence on the economy. Of course, any change in the norm of mandatory reservation must be carefully thought out and justified. In a stable economy, the introduction of changes can negatively affect the entire banking system, then it makes sense to take advantage of other levers of monetary policy.