What is crr and slr

The following examples will help define the cash reserve ratio even better. Let us have a look:

Example 1

Suppose the Federal Reserve specifies the CRR as 9%. In such a scenario, a banking institution with a deposit of $100 million can easily calculate the reserve requirement to put in their vault or deposit with the Reserve. 

Based on the formula above, the bank derives the equation for finding out the reserve requirement when deposits and ratios are already provided:

Reserve Requirement= CRR * Deposits

= 9/100*100 million

= 9 million

Thus, the banks would require holding on to $9 million, which would further be unavailable for lending and investment purposes.

Example 2

When CRR is applied, it helps in multiplying funds.

Let us check how so in very simple terms.

Slr full form

If a bank has a deposit of $100 million and the reserve ratio is 5%, it holds on to $5 million but lends and invests the rest 95% deposits, which account for $95 million. This 95% of the fund comes back to the bank in the form of more deposits from the citizens.

Then, the banks access 95% of that

how to calculate crr in bank

what is crr rate