Reserve Requirement

The reserve requirement is the minimum amount of funds that a bank must keep on hand and not lend out, as set by a country's central bank. This acts as a safeguard to ensure the bank has enough cash to meet customer withdrawal demands and maintain financial stability. Essentially, it's a rule that helps prevent banks from taking on too much risk and supports the overall health of the financial system. The reserve requirement can influence how much banks can lend, affecting overall economic activity.