A Cash Reserve Ratio, also known as the Reserve Requirement is a regulation set by Central bank (Bangladesh Bank) which dictates the minimum amount (reserves) that a commercial bank (in some cases, any bank) must be held to customer notes and deposits. In simpler terms this is the amount the bank must surrender with/to the Central (governing) Bank.
It
is a percentage of bank reserves to deposits and notes. Cash reserve ratio is
also known as liquidity ratio or cash asset ratio and is utilized as a tool
(sometimes) in monetary policy and as a tool to influence the country’s
interest rates, borrowing and economy. For example, if the reserve ratio in the
Bangladesh is determined by the central bank to be 11%, this means all banks
must have 11% of their depositors' money on reserve in the bank. So, if a bank
has deposits of 1 billion, it is required to have 110 million on reserve.