How to Calculate the Desired Reserve Ratio

Put your bank's dollars to work in the most efficient way.

The desired reserve ratio is what bank management deems an ideal percentage of deposits to be kept as reserves. The number depends on operations specific to your bank and must be in excess of the Federally-mandated reserve requirement. In today's competitive financial industry, sustaining an optimal reserve ratio is a must.

Things You'll Need

• Deposits
• Expenses
• Margins
• Other Accounting Measures
• Goals

Instructions

Defining Bank Operations and Calculating Your Desired Reserve Ratio

1. Compile your bank's accounting data. Included should be a list of all deposits and the Federally determined required reserve ratio. This number is zero for the smallest banks and 10% for institutions with $55 million or more in deposits. Other important data may be profit margins and asset allocation for lending, investing, customer service and other regular operations.

2. Analyze operations to discern between those that are funded efficiently and those that are not. If cash is underutilized or being handled sloppily in some areas, you may wish to hold less in reserves or appropriate some to areas that are underfunded.

3. Put your plan to work and stay attentive. Allocate funds as management deems optimal and continually analyze operations to account for necessary changes. What works best today may need some tweaking down the road.

References

• Iowa State: Econ 102 Notes