How this calculator works
The reserve ratio is the fraction of customer deposits a bank keeps as reserves rather than lending out. A bank with $1,000 of deposits and $100 of reserves has a 10% ratio and $900 of loanable funds. In the textbook money-creation process, each loan becomes a new deposit, so a lower ratio supports more lending and a larger money supply. In practice, reserves held at the central bank earn interest in several countries, many banks hold more than required, and some jurisdictions such as Canada have no formal reserve requirement at all. The ratio is therefore a descriptive measure, not necessarily a binding constraint.
Formula
Reserve ratio = reserves / deposits, displayed as a percentage. Reserves = reserve ratio × deposits, deposits = reserves / reserve ratio, and loanable funds = deposits - reserves.
Worked example
Deposits of $1,000 with reserves of $100 give a 10% reserve ratio and $900 of loanable funds. At a ratio of 12.5%, the same $1,000 of deposits would require $125 of reserves and leave $875 to lend.
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Frequently asked questions
Are reserves the same as the bank's cash on hand?
Reserves include balances held at the central bank as well as vault cash. The reserve ratio uses the total, not only notes in the branch.
What happens if reserves exceed deposits?
The ratio would exceed 100%, which is not meaningful for a deposit-taking bank in this model. The tool rejects that combination.
Does a lower reserve ratio always create more money?
Only if banks lend out the extra funds and borrowers deposit them again. Weak loan demand, capital constraints or precautionary liquidity can leave the extra reserves idle, which is what happened in several economies after 2008.