Central banks require commercial banks to hold a specific minimum volume of reserves, calculated as a percentage of their customer deposit liabilities. This mechanism is known as the Required Reserve Ratio. [1]

To calculate a bank’s mandatory reserve cushion, compliance teams apply the regulatory ratio across the deposit base:

Mandatory Reserve Pool = Required Reserve Ratio * Total Eligible Customer Deposit Liabilities

For example, if a commercial bank holds $50,000,000 in eligible customer deposits and the central bank enforces a Required Reserve Ratio of 10% (0.10), the plain-text calculation is:

Mandatory Reserve Pool = 0.10 * 50,000,000 = $5,000,000

These mandatory reserves help ensure that individual institutions maintain baseline liquidity buffers, while providing central banks with an additional tool to influence overall credit expansion across the economy.