HopefullyInLawSchool
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Simple English definitions for legal terms
deposit ratio
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A quick definition of deposit ratio:
Deposit Ratio: The deposit ratio is a measure of how much money a bank has in deposits compared to how much money it has in capital. In simpler terms, it shows how much money people have put into the bank compared to how much money the bank has to work with.
A more thorough explanation:
The deposit ratio is a financial ratio that measures the proportion of a bank's total deposits to its total capital. It is calculated by dividing the total deposits by the total capital.
If a bank has $100 million in deposits and $20 million in capital, the deposit ratio would be 5:1 ($100 million/$20 million).
The deposit ratio is an important metric for banks as it indicates the level of risk they are taking on. A higher deposit ratio means that the bank is relying more heavily on deposits to fund its operations, which can be risky if there is a sudden withdrawal of deposits. On the other hand, a lower deposit ratio means that the bank has more capital to absorb losses and is less reliant on deposits.