Simple English definitions for legal terms
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A legal reserve is a certain amount of money that a bank or insurance company is required by law to keep on hand to meet the demands of their customers. It is like a savings account that is set aside for emergencies or future needs. Other types of reserves include a bad-debt reserve for covering losses on unpaid bills, a loss reserve for estimated future payments, and a required reserve set by the Federal Reserve Board for banks to hold in cash and deposits.
A legal reserve is a minimum amount of liquid assets that a bank or an insurance company must maintain by law to meet depositors' or claimants' demands. It is a fund of money set aside to cover future liabilities.
For example, a bank must maintain a legal reserve to ensure that it has enough money to meet the demands of its depositors. This reserve is set by law and is a percentage of the bank's deposits. Similarly, an insurance company must maintain a legal reserve to cover future claims from policyholders. This reserve is based on the company's estimated future liabilities and is also set by law.