required reserves ratio as one of the most effective instruments of monetary policy.This figure is set by the central bank of the country for commercial credit institutions and secured by law.The aim of the reserves is to insure the entire banking system of unforeseen circumstances, to maintain the level of liquidity and profitability.In addition, they enhance the reliability and ensure the safety of citizens' savings held in deposit accounts.
as a motivating factor, when required reserves were created, by a desire to always have a certain amount of money by which the bank returns the money to the client in a timely manner.In the present economic situation, the government is using such reserves to regulate the money supply.For example, when handling goes too much cash, and in connection with the accelerated rate of inflation, the reserve requirement specifically increases.Thus, there is a rise in the cost of loans and containment of the funds in the cash department of the National Bank.
Do not forget that by using these reserves the government controls natural processes in the financial market, adjusting the value of the securities.However, this tool should be properly managed, in fact, in addition to the positive influence it can highlight a number of shortcomings.For example, constantly changing the reserve requirement creates an imbalance in the banking system as to adapt to new conditions of any credit institution is difficult.In addition, the amount earmarked in the reserve, are subject to taxation, which means that part of the funds commercial tank irretrievably lost.
bank reserves should contain sufficient funds to maintain the financial stability of the organization in a changing environment.If they are missing, the commercial banks have to borrow from the National Bank to sell any portion of their securities.And as a result the level of overall liquidity is markedly reduced.This pattern can be observed with an increase in reserve requirements.When they are released reducing credit resources that are used to repay existing debt, which consequently increases liquidity.
The required reserves may affect the interest rate paid by legal entities or individuals as a reward for using credit.Of course, when the government pursues a policy of "expensive money", the amount of deductions to the reserve increases - and then free credit resources at the disposal of the bank, is getting smaller.This is the reason for the increase of the interest rate on loans.However, the central bank is not always possible to influence the commercial lending institutions.There may be a situation in which banks conduct large-scale operations and have a large number of customers, and therefore the size of their profits will be high enough.Strong financial position allows you to transfer to the account of the National Bank of reserve requirements, without changing the interest rates on loans and deposits.
Therefore, public authorities should carefully examine the market situation, to investigate the banking sector, and only then take concrete measures impact on the economy.Of course, any change in reserve requirements should be carefully thought out and justified.The introduction of a stable economy changes may adversely affect the entire banking system, then it makes sense to use other levers of monetary policy.
