A reserve is a balance that a commercial bank holds at the central bank. It is a liability of the central bank and an asset of the commercial bank.

Reserves are used to settle payments between banks and to meet regulatory requirements. They are not the same as the deposits that households and firms hold at commercial banks. A bank making a loan creates a deposit; it does not transfer reserves to the borrower.[1]

The quantity of reserves is influenced by central-bank asset purchases, lending facilities, and the banking system's demand for safe settlement balances.[2]

Sources

  1. McLeay, Michael; Radia, Amar; Thomas, Ryland. Money creation in the modern economy. Bank of England Quarterly Bulletin. 2014. View source Accessed Nov 11, 2026.
  2. Keister, Todd; McAndrews, James. Why Are Banks Holding So Many Excess Reserves?. Federal Reserve Bank of New York, Current Issues in Economics and Finance. 2009. View source Accessed Nov 11, 2026.