# Minimum reserve/ liquidity ratio



## AndyHobbs (28 Jun 2006)

Does anyone know what the current liquidity ratio/ minimum reserve is for Irish Banks?

Basically I am trying to calculate roughly what multiple of the funds in an a/c the banks can lend out.

I have found references to the primary and secondary liquidity ratio but am not sure what the difference is.

Whatever it is, surely this is the strongest argument against customers having to pay ANY bank charges...


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## Guest107 (28 Jun 2006)

6-8% rings a bell somewhere in the brain.


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## room305 (28 Jun 2006)

I know the reserves were raised by the IFSRA recently but I believe the amount currently sitting in current accounts wouldn't be enough to cover to old reserve rate. This may well have been the thinking behind the sale and leaseback arrangements of the headquarters of the two largest banks (i.e. they could make more money by loaning the proceeds to customers than they could hope to make in capital appreciation of the property).

Furthermore, BOI are issuing dollar bonds to the Asian markets, secured against residential property here, in a bid to raise further funds. I don't have time to search for the links now but I will try to do so later.


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## Guest107 (28 Jun 2006)

These 'securitised bonds' get money back in to lend again  and are not  counted towards the reserve being 'off book' once the bond are sold.

Funny how far away they went to sell Irish Property (in effect)  though


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## bearishbull (28 Jun 2006)

think its now 8% and was risen from 4% so at 8% a bank can lend 1/.08 = 12.5 times the money in accounts? the joys of fractional reserve banking!


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## AndyHobbs (28 Jun 2006)

So 500 in an a/c to qualifiy for "FREE banking!!" earning me minuscule% interest, can earn the banks 4+% on 6250...


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## smmb (20 Jul 2006)

*From the Central Bank : *

*Minimum Reserve System* 

The ECB requires that credit institutions hold compulsory deposits on account with the NCBs: these are called “minimum” or “required” reserves. The amount of reserves required to be held by each institution is determined by its reserve base, which is defined in terms of liability items on its balance sheet and includes deposits and debt securities issued. However, liabilities with respect to other institutions subject to the minimum reserve system are not included. Reserve requirements are based on a reserve ratio, currently 2 per cent.

In order to pursue the aim of stabilising interest rates, the Eurosystem’s minimum reserve system enables institutions to make use of averaging provisions. Compliance with reserve requirements is determined on the basis of an institution's average daily reserve holdings over a one-month maintenance period. Institutions' holdings of required reserves are remunerated at a rate which is based on the main refinancing operations rate, and thus close to market rates, although balances in excess of requirements are not remunerated. When an institution fails to meet its minimum reserve obligations sanctions may be imposed by the ECB.


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