How to Calculate Required Reserves
Required reserves equal the required reserve ratio multiplied by a bank's checkable deposits.
The Required Reserves formula
Calculator
Enter checkable deposits, the reserve ratio and total reserves to get required reserves and what is left over.
Demand deposit liabilities only. Loans, securities and total assets do not enter this.
Enter 10 for 10%, which the calculator reads as 0.10.
Vault cash plus the bank's deposits at the central bank.
The bank must keep $5,000 against $50,000 of checkable deposits and may not lend it out.
- Excess reserves
- $3,000
- Actual reserve ratio
- 16%
- Reserve position
- Holding excess reserves
$3,000 sits above the minimum, and that is the most this single bank can lend today.
Total reserves as a share of deposits. Anything above the required ratio is slack the bank can put to work.
How to calculate Required Reserves, step by step
- 1Find checkable deposits. Use the bank's checkable (demand) deposit liabilities, not its loans, securities, or total assets.
- 2Convert the ratio to a decimal. A ratio quoted as 10% becomes 0.10 before you multiply.
- 3Multiply. Required reserves = reserve ratio × checkable deposits.
- 4Compare with total reserves. Whatever the bank holds above this minimum is excess reserves, and that is the part it can lend.
Worked example: Required Reserves
A bank holds $50,000 in checkable deposits and the problem uses an illustrative required reserve ratio of 10% (0.10). Required reserves = 0.10 × $50,000 = $5,000. If the bank's total reserves are $8,000, it is holding $8,000 − $5,000 = $3,000 in excess reserves.
Required Reserves questions
Does the reserve requirement apply to savings accounts?
On the AP exam the ratio is applied to checkable deposits only. Savings and time deposits show up in M2 but not in the required reserve calculation you are asked to do.
What happens when the required reserve ratio falls?
Required reserves fall and excess reserves rise by the same amount, so banks can lend more and the money supply expands. Raising the ratio does the reverse.
Do vault cash and deposits at the central bank both count?
Yes. Total reserves are vault cash plus the bank's deposits held at the central bank, and both count toward meeting the requirement.
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