The portion of total deposits that the banks (private or commercial) are required to maintain with the central bank in cash reserve. Once created, such reserves are held away from the funds available for lending.

The requirement for the reserve ratio is set by the central bank in a given country. It is calculated, as a percentage, by dividing the cash reserve maintained with a central bank by the bank deposits (those of the private or commercial bank), and it is expressed in percentage.

Reserve ratio = reserve maintained with central bank ÷ bank deposits * 100%

The reserve ratio is also known as bank reserve ratio, bank reserve requirement, or cash reserve ratio.