Reservas

What Are Reservas?

"Reservas," or reserves, are assets held by an entity to meet future obligations or unforeseen demands. In finance, this broad term most commonly refers to the funds that financial institutions, particularly commercial banks, are required to hold by their central banks. These holdings ensure a degree of liquidity and contribute to the stability of the broader financial system. The concept of reserves is a cornerstone of banking and monetary policy, belonging to the broader financial accounting and banking categories. Beyond bank reserves, the term also applies to other assets held for specific purposes, such as corporate retained earnings or a nation's foreign exchange reserves.

History and Origin

The practice of holding reserves by banks predates modern central banking. Early commercial banks recognized the need to keep a portion of their deposits readily available to meet withdrawal demands, especially given the risks of bank runs. In the United States, formal reserve requirements were first established at the national level with the passage of the National Bank Act in 1863. This act mandated that banks holding national charters maintain a certain percentage of their deposits as reserves.³⁶ Prior to the creation of the Federal Reserve System in 1913, reserve requirements were primarily seen as a way to promote the liquidity of bank notes and deposits. However, banking panics persisted, demonstrating the limitations of these requirements as the sole guarantor of liquidity.³⁵ The Federal Reserve was established as a central bank, capable of providing liquidity to the entire banking system, shifting the primary rationale for reserves towards monetary policy control.³⁴ For decades, the Federal Reserve adjusted reserve requirement ratios to influence the money supply. However, in a significant shift, the Federal Reserve Board reduced reserve requirement ratios to zero percent effective March 26, 2020, effectively eliminating mandatory reserve requirements for all depository institutions.³³

Key Takeaways

Bank Reserves: Funds held by commercial banks, typically as vault cash or deposits at a central bank, to meet liquidity needs or fulfill regulatory mandates.
Monetary Policy Tool: Historically, central banks used reserve requirements as a tool of monetary policy to influence the money supply and credit conditions.
Current U.S. Context: The U.S. Federal Reserve currently maintains a zero percent reserve requirement ratio for most deposit liabilities, shifting its primary monetary policy tools.³²
Corporate Reserves: Portions of a company's profits set aside for specific future uses, such as asset replacement, debt repayment, or expansion.
Foreign Exchange Reserves: Assets denominated in foreign currencies held by a central bank to manage exchange rates and support international trade.

Formula and Calculation

Historically, the calculation of required reserves for commercial banks in the U.S. involved applying a specific reserve ratio to a bank's net transaction accounts. While the required reserve ratio is currently 0%, understanding the historical calculation provides insight into the concept of reserves.

The general formula was:

\text{Required Reserves} = \text{Reservable Liabilities} \times \text{Reserve Ratio}

Where:

Required Reserves refers to the minimum amount of funds a bank was mandated to hold.
Reservable Liabilities typically included net transaction accounts (e.g., checking accounts) and certain other deposits, as defined by the central bank. The specific amounts that were subject to reserve requirements were adjusted periodically.³¹
Reserve Ratio was the percentage set by the central bank.

For instance, prior to March 26, 2020, specific thresholds existed: a certain exemption amount had a 0% ratio, balances up to a "low reserve tranche" were subject to a 3% ratio, and balances above that tranche faced a 10% ratio.³⁰,²⁹ While this specific calculation for required reserves is no longer in effect in the U.S., banks still hold reserves, often significantly in excess of zero, for operational liquidity and interbank settlements.

Interpreting the Reservas

The interpretation of "reservas" depends heavily on the context. In the banking sector, the level of reserves held by commercial banks can indicate their liquidity position and willingness to lend. When banks hold high levels of excess reserves, it might suggest a cautious lending environment or ample liquidity within the system. Conversely, low reserves could signal a constrained lending environment or tight liquidity.

For a central bank, the level of foreign exchange reserves is crucial for maintaining financial stability and managing its country's exchange rate. These reserves allow central banks to intervene in foreign exchange markets, stabilize their currency, and meet external obligations. The management of these reserves is a critical aspect of international monetary policy and can impact a nation's ability to navigate global economic cycles.

Hypothetical Example

Consider a hypothetical commercial bank, "Diversification Bank," before March 2020, when reserve requirements were still in effect. Suppose Diversification Bank had total customer [deposit accounts] of $500 million. Under a simplified hypothetical reserve requirement system where the first $100 million in deposits had a 3% reserve ratio and the amount above $100 million had a 10% reserve ratio, the calculation for its required reserves would be:

Reserves on the first $100 million: ( $100,000,000 \times 0.03 = $3,000,000 )
Remaining deposits: ( $500,000,000 - $100,000,000 = $400,000,000 )
Reserves on the remaining $400 million: ( $400,000,000 \times 0.10 = $40,000,000 )

Total required reserves for Diversification Bank: ( $3,000,000 + $40,000,000 = $43,000,000 )

This $43 million would represent the minimum amount Diversification Bank was legally required to hold as reserves, either as vault cash or in its account with the central bank. This demonstrates how a bank's balance sheet reflects these mandated holdings.

Practical Applications

Reservas play a vital role across various facets of finance:

Banking Regulation: Historically, reserve requirements were a primary regulatory tool to ensure bank liquidity and prevent widespread bank runs. While mandatory reserve ratios have been reduced to zero in the U.S.,²⁸ banks still hold significant reserves as a result of central bank actions like quantitative easing and for prudential reasons, impacting the overall financial stability.²⁷
Monetary Policy: Central banks use reserves to influence the availability of money and credit in an economy. Through tools like open market operations, they can add or drain reserves from the banking system, affecting [interest rates] and overall economic activity.
Corporate Finance: Companies maintain various types of internal reserves, such as [retained earnings] on their balance sheet, which represent accumulated profits not distributed as dividends. These reserves can be used for reinvestment, debt reduction, or to absorb future losses, adhering to sound [accounting principles].
International Finance: Nations hold foreign exchange reserves to manage their currency's value, finance international trade, and provide a buffer against external economic shocks. The International Monetary Fund (IMF) offers guidelines on managing these reserves to ensure adequate foreign currency liquidity.²⁶ The Federal Reserve System, as the central bank of the United States, engages in foreign exchange operations as part of its functions.²⁵

Limitations and Criticisms

While reserves are fundamental to financial systems, their effectiveness and optimal levels are subject to debate and criticism.

One historical criticism of rigid reserve requirements was that they could act as a tax on banks, as reserves often earn little to no interest, effectively reducing a bank's profitability and its incentive to lend.²⁴ Furthermore, in times of [financial crisis], banks might hoard reserves rather than lend them, potentially exacerbating credit crunches, even if those reserves are ample.²³

The shift to a zero percent reserve requirement in the U.S. in 2020 reflects a changing perspective on their role in monetary policy, particularly in an environment where central banks manage large balance sheets through tools like quantitative easing. Some argue that massive increases in bank reserves due to quantitative easing might encourage banks to take on more risk in a "search for yield," even if they don't directly stimulate new lending to businesses and households.²² Research by the National Bureau of Economic Research, for example, suggests that the expansion of central bank reserves might even crowd out new bank lending to firms, due to banks facing leverage ratio regulations.²¹

Reservas vs. Capital

While often discussed in the context of a firm's financial strength, "reservas" and [capital] are distinct concepts in finance and accounting.

Feature	Reservas (Reserves)	Capital (Equity Capital)
Definition	Funds or assets set aside for specific purposes, or liquid assets held by banks.	The ownership stake in a company; funds contributed by owners plus retained earnings.
Purpose (Banks)	To meet liquidity needs, manage payments, or fulfill regulatory requirements (historically).	To absorb losses, provide a buffer against insolvency, and support business operations.
Source	Can be generated internally (e.g., retained earnings), or be a result of central bank actions (e.g., bank reserves).	Raised from shareholders (common stock, preferred stock) and accumulated retained earnings.
Liquidity	Often implies highly liquid assets (e.g., cash, central bank deposits).	Represents the residual claim on assets, not necessarily liquid itself.
Risk Bearing	Primarily for operational stability and meeting immediate obligations.	Bears the first losses of the company; acts as the ultimate buffer against financial distress.

Reserves, especially cash reserves, are assets that contribute to a bank's liquidity, helping it meet short-term obligations and process transactions. Capital, on the other hand, refers to the ownership funds that provide a cushion against losses and ensure the bank's long-term solvency. Regulatory bodies impose [capital requirements] on banks to ensure they have sufficient capital to absorb unexpected losses, distinct from requirements for reserves.

FAQs

What are the main types of "reservas" in finance?

The main types include bank reserves (funds held by commercial banks), corporate reserves (portions of profits set aside by companies), and foreign exchange reserves (foreign currency assets held by central banks).

Do U.S. banks still have to hold reserves?

As of March 26, 2020, the U.S. Federal Reserve reduced the reserve requirement ratio for all depository institutions to zero percent.²⁰,¹⁹ While no longer legally required to hold a specific percentage, banks still hold significant balances at the Federal Reserve for operational needs, interbank settlements, and as a result of the Federal Reserve's balance sheet policies.

How do "reservas" impact the economy?

In the context of bank reserves, they traditionally influenced the money supply and lending capacity of banks, affecting [inflation] and economic growth. When reserve requirements were higher, they could limit the amount banks could lend. For foreign exchange reserves, they help a country manage its currency's value and provide financial stability, especially during periods of stress in international markets.

What is the role of the central bank concerning "reservas"?

Central banks, like the Federal Reserve, historically set and adjusted reserve requirements as a tool for [monetary policy]. Although direct reserve requirements are now zero in the U.S., central banks continue to manage the overall level of reserves in the banking system through other operations, such as asset purchases or sales. This influences the availability of liquidity and the functioning of the interbank lending market.¹ ² ³ ⁴ ⁵ ⁶ ⁷ ⁸ ⁹ ¹⁰ ¹¹ ¹² ¹³ ¹⁴[^¹⁸15^](https://www.federalreserve.gov/monetarypolicy/reservereq.htm)[¹⁶](https://www.federalreservehistory.org/essays/federal-reserve-history)[¹⁷](https://www.federalreserve.gov/monetarypolicy/0693lead.pdf)