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Bank Reserves

1) Primary reserves are the first line of defense for commercial banks against customer deposit withdrawals and are used to fund customer loan requests. 2) Secondary reserves include short-term government securities, money market securities, interest-bearing time deposits with other banks, and commercial paper. 3) Investment reserves are assets held by investors or companies to cover losses if certain investments in their portfolio decline in value.

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280 views21 pages

Bank Reserves

1) Primary reserves are the first line of defense for commercial banks against customer deposit withdrawals and are used to fund customer loan requests. 2) Secondary reserves include short-term government securities, money market securities, interest-bearing time deposits with other banks, and commercial paper. 3) Investment reserves are assets held by investors or companies to cover losses if certain investments in their portfolio decline in value.

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Pinpin Mark Angelo
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© © All Rights Reserved
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They are meant for emergencies


whenever a bank runs out of cash to
be used for withdrawals.

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Primary Reserves
They are meant for emergencies
whenever a bank runs out of cash to Affecting Factors
be used for withdrawals.
Secondary Reserves

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Primary reserves
These assets are the first line of defense
against customer deposit withdrawals
and the first source of funds to look to
when a customer comes in with a loan
request
Factors affecting reserves on
commercial banks
Habits of the customers and business
conditions
The amount of reserve required by a bank depends on the habits of the customers and the business conditions of
the locality, which the bank is serving.
Use of check currency
Where the check currency is popular, the need for hand to hand currency is less and consequently smaller
reserves will suffice, because payments for these checks will, to a large extent, be made by transfer entries in the
books of the bank.
Bankers‘ clearing house
Most of the checks pass through the clearinghouse, a banker is not required to find funds for all the
checks drawn upon him and held by other bankers.
NATURE OF ACCOUNTS
If most of the current accounts of banks are holds large sums of money, they usually require larger
reserves.
SIZE OF AVERAGE DEPOSITS
A bank which has only a few large deposits has to keep a larger reserve than a bank with numerous
small accounts because the larger the number of clients of a bank, the less is the likelihood of any
concerted movement towards a withdrawal of deposits.
Nature of advances and amount of bills
discounted
The reserve a banker should keep is also affected by the consideration of the amount of money
invested by him in the discount of commercial paper.
Secondary
reserves
These typically include holdings of short-
term government securities and privately
issued money market securities,
including interest- bearing time deposits
held with other banking firms and
commercial paper
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Investment Reserve
BSP’s Reserve Requirements
Investment reserves
Any assets that an investor or a
company have held in check to cover
losses incurred when certain
investments contained in the
portfolio experience some sort of
downturn in value.
BSP’S Reserve
Requirements
the percentage of bank deposits and
deposit substitute liabilities that
banks must set aside in deposits
with the BSP which they cannot lend
out, or where available through
reserve-eligible government
securities
Bangko sentral ng pilipinas (BSP) Reserve
requirements (as of 2020)

12 3 2
Universal and
Commercial Banks
Thrift Banks Rural Banks

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