Reserve Ratio Calculator
Calculate a bank’s reserve ratio and the resulting money multiplier used in basic fractional-reserve banking analysis.
What the reserve ratio measures
The reserve ratio (also called the required reserve ratio) is the fraction of deposits that a bank keeps on hand as reserves rather than lending out. It is calculated as reserves held divided by total deposits, expressed as a percentage.
The money multiplier
The reserve ratio also determines the theoretical money multiplier, calculated as 1 divided by the reserve ratio. This multiplier shows the maximum amount of money the banking system could theoretically create from an initial deposit, as each bank lends out its excess reserves and those loans get redeposited elsewhere in the system.
This is a simplified textbook model of fractional-reserve banking for general educational purposes. Real-world money creation also depends on loan demand, bank capital requirements, and central bank policy, so actual outcomes differ from this theoretical maximum.