Bank reserves or
central bank reserves are
banks' holdings of
deposits in accounts with their
central bank (for instance the
European Central Bank or the
Federal Reserve, in the latter case including
federal funds), plus
currency that is physically held in the bank's
vault ("vault
cash"). Some central banks set minimum
reserve requirements, which require banks to hold deposits at the central bank equivalent to at least a specified percentage of their
liabilities such as customer deposits. Even when there are no reserve requirements, banks often opt to hold some reserves —called
desired reserves— against unexpected events such as unusually large net withdrawals by customers or
bank runs.