Monday, February 20, 2012

China's Central Bank Lowers Bank Reserve Ratio Requirements

This past weekend, China's central bank reduced the reserve ratio requirements for banks. Even after the .5% reduction, China's reserve ratios are still twice what is required of banks in the United States. This move, however, shows that China is looking for ways to get their economy moving once again, and will have an impact on a global scale. For more on this, continue reading the following post from Tim Iacono.

China’s central bank cutting bank reserve ratios on Saturday in order to spur lending and boost economic growth was one of the weekend’s major stories, that is, along with more Middle East geopolitical turmoil and surging oil prices … perhaps they’re all connected.

Reserve requirements will be reduced from 21.0 percent to 20.5 percent for large banks, leaving China with what are still some of the highest bank reserve ratios in the world. Wikipedia provides a good discussion of this subject that includes the following caveat to the official reserve ratio of 10 percent here in the U.S.:

Effective December 27, 1990, a liquidity ratio of zero has applied to CDs, savings deposits, and time deposits, owned by entities other than households, and the Eurocurrency liabilities of depository institutions. Deposits owned by foreign corporations or governments are currently not subject to reserve requirements.

This blog post was republished with permission from Tim Iacono.

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