i was reading two separate articles: one said Canadian banks have a reserve requirement of 2% and another said US banks have reserve requirements of 10%. does anyone know why the US would have higher reserve requirements, i thought canadian banks were known for being much more regulated and risk averse than the US banks? thanks!
You are correct, required reserve ratio is one of the tools to control money supply. US could have lowered this ratio for banks further, in order to increase much wanted money supply in this credit crunch. But unfortunately for US, they cannot leverage this tool as much as they would have wished to. This is because relative health of Banks in US is much worse than those in Canada.
Also, some countries do not believe ‘Reserve Requirements’ is an effective tool for controlling Money Supply, as Banks anyways have many ways to circumvent this obligation. Canada is one of these countries. I think, they had removed reserve requirements totally in recent past. I guess this explains their much lower rate as compared to US.
thanks!