Central Banks In a fractional reserve banking system, banks keep a fraction of deposits as reserves and use the rest to make loans Central banks establish reserve requirements regulations on the minimum amount of reserves that banks must hold against deposits Banks may hold more than this minimum amount if they choose The reserve ratio. r fraction of deposits that banks hold as reserves total reserves as a percentage of total depositsCentral Banks Central Banks • In a fract o a ese e ba g syste ional reserve banking system, banks keep a fraction of deposits as reserves and use the rest to make loans. • Central banks establish reserve requirements, regulations on the minimum amount of reserves that banks must hold against deposits. • Banks may hold more than this minimum amount if they choose. • The reserve ratio, R = fraction of deposits that banks hold as reserves = total reserves as a pg p ercentage of total deposits