A type of reserve that is maintained by a bank or financial institution as a minimum amount to meet the obligations that may be incurred in relation to its core business (deposit-taking and lending). It is an amount of money (and other highly liquid assets such as marketable securities) put aside as per statute or banking regulations in order to ensure that the institution can meet withdrawal requests at any time.
The statutory requirements of a regulatory authority may require that 10% of annual profits be set aside as a statutory reserve.
This reserve is specifically created out of restricted retained earnings.
